Report Arutmin Indonesia September 2011

EM^ZARS

lntedm Financial StatementsWith Independent Accountants' Report

$eptember 30, 2011 (Unaudited) andMarch 31, 2011 (Audited) and

For the Six-Month Periods EndedSeptember 30, 2011 and 2010 (Unaudited)

PT ARUTMIN INDONESIA

TJrEN DRADJAJA & HAN DOKO TOMO

Table of Contents P a g e

Independent accountants’ report Interim statements of financial position (balance sheets) 1 Interim statements of comprehensive income 3 Interim statements of changes in equity 4 Interim statements of cash flows 5 Notes to the interim financial statements 6

EM^ZARS

INDEPENDENT ACCOUNTANTS' REPORT

Report No. NA026/2011

The Shareholders, Boards of Commissioners and DirectorsPT Arutmin lndonesia

We have reviewed the accompanying interim statement of financial position (balance'sheet) ofPT Arutmin Indonesia (the "Company") as of September 30,20IL, and the related interimstatements of comprehensive income, changes in equity and cash flows for the six-monthperiod then ended. These interim financial statements are the responsibility of the Company'smanaSemenr.

We conducted our review in accordance with the standards establ ished by the IndonesianInstitute of Certified Public Accountants. A review offinancial information consists principally ofapplying analyt ical procedures to f inancial data and making inquir ies of persons responsible forf inancial and accounting matters. l t is substantial ly less in scope than an audit conducted inaccordance with generally accepted auditing standards, the objective of which is the expressionof an opinion regarding the financial statements taken as a whole. Accordingly, we do notexpress such an opinion.

Based on our review, we are not aware of any material modifications that should be made tothe interim financial statements as of September 30,2011 and for the six-month period thenended for them to be in conformity with Indonesian Financial Accounting Standards.

As disclosed in Note 27 to the interim financial statements, the Company is contingently liablefor various claims from third part ies arising from the ordinary conduct of business, including taxassessments, the results of which are either pending or are being processed by the court, andwhose outcomes may be substantial, but are not presently determinable.

The financial statements for the year ended March 37, 2017 were audited by us, and weexpressed an unquali f ied opinion on those f inancial statements in our report datedMaV 2,2OLL. The interim financial statements for the six-month period ended September 30,2010 were reviewed by us and we were not aware of any indications of material modificationsthat should be made on those interim financial statements in our report dated October 28,2010. Our reports on those financial statements included explanatory paragraphs thatdescribed the restatement of 2009 financial statements relating to adjustments on thedifference between the tax declared in the Annual Corporate Income Tax Return against the taxpayable as previously reported in the financial statements, restatement of 2010 financialstatements relat ing to the amended Long-term Supply Agreement between the Company andIndoCoal Resources (Cayman) Limited, and contingent l iabi l i t ies from various claims from thirdpart ies, including tax assessments, the outcomes of which were pending.

T;reru DRADJAJA 8" HnNtDot(o TotvtoREclsrER€D PuBLrc Accou NrANrs - No. KEP_ l 295 l KM.1 l?009

lL . S rs NcaMANcARAta No , 26 , 2 " " FLooR - IAKARTA 12120 _ INDoN€s lAlEL +62 21 720 26Q5 - Fax'. +62 21 727 88954 - www.MAzARs co. D

E"AZARS

This report is intended solely for the information and use for consolidation purpose of TataPower Company Limited, the ultimate parent of Bhira Investments Limited, and is not intendedto be, and should not be, used by anyone other than this specified party.

October 24,2011

,,.*r"'"Publ ic Atcountant License No. 07.1.1009

NOTICE TO READERS

The accompanying interim financial statements are not intended to present the financial position, results of operations and cash flows inaccordance with a€counting principles and practices generally accepted in countries and jurisdictions other than Indonesia. The standards,proceilures and practices utilized to review such interim financial statements may differ from those generally accepted in countries andjurisdictions other than Indonesia. Accordingly, the accompanying interim financial statements and the accountants' repoft thereon are notintended for use by those who are not informed about Indonesian accounting principles and auditin8 standards, and their application inpra€Uce,

T; re ruonno;AJA & HANDoKo ToMoREcrsrEREo PuBLrc Ac.ouNrANrs - No. KEP.I295lKM.l /2009

The accompanying notes to the interim financial statements are an integral part of these interim financial statements.

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PT ARUTMIN INDONESIA INTERIM STATEMENTS OF FINANCIAL POSITION (BALANCE SHEETS) SEPTEMBER 30, 2011 (Unaudited) AND MARCH 31, 2011 (Audited) (Expressed in United States Dollar, unless otherwise stated)

September 30, March 31,Notes 2011 2011

ASSETS

CURRENT ASSETSCash 5 35,461,505 18,131,303 Trade receivables - net 6 101,802,738 74,809,059 Other receivables - net 7 7,284,644 5,887,215 Due from related parties 7 189,477,664 249,739,492 Loans to shareholders 7,8 69,153,966 33,353,966 Inventories 9 16,904,267 34,390,442 Value-Added Tax recoverable 10,27b 318,669,851 263,141,981 Other current assets 11 13,215,951 16,361,462

Total Current Assets 751,970,586 695,814,920

NON-CURRENT ASSETSDue from related parties 7 180,000 560,000 Fixed assets - net 12 49,517,689 47,468,029 Deferred exploration and

development costs - net 13 23,125,419 40,742,462 Deferred stripping costs - net 14 274,181,264 94,434,157 Other non-current assets 7,15 79,203,821 71,089,095

Total Non-Current Assets 426,208,193 254,293,743

TOTAL ASSETS 1,178,178,779 950,108,663


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PT ARUTMIN INDONESIA INTERIM STATEMENTS OF FINANCIAL POSITION (BALANCE SHEETS) SEPTEMBER 30, 2011 (Unaudited) AND MARCH 31, 2011 (Audited) (Expressed in United States Dollar, unless otherwise stated)

September 30, March 31,Notes 2011 2011

LIABILITIES AND EQUITY

CURRENT LIABILITIESTrade payables 7,16 58,323,544 67,044,807 Due to related parties 7 8,160,545 8,831,691 Due to Government of Indonesia 1b,26a,27b 339,392,930 292,160,728 Taxes payable 17a 129,720,683 162,682,987 Estimated liability for restoration and

rehabilitation - current portion 19 8,518,623 8,620,440 Other current liabilities 18 107,570,893 87,229,756

Total Current Liabilities 651,687,218 626,570,409

NON-CURRENT LIABILITIESDeferred tax liabilities - net 17c 14,692,396 7,614,074 Estimated liability for restoration and

rehabilitation - non-current portion 19 106,653,141 97,876,642 Employee benefits obligation 24 11,927,417 11,040,993

Total Non-Current Liabilities 133,272,954 116,531,709

Total Liabilities 784,960,172 743,102,118

EQUITYCapital stock - USD100 par value per share

Authorized - 40,000 sharesIssued and fully paid - 10,000 shares 20 1,000,000 1,000,000

Retained earnings 392,218,607 206,006,545

Total Equity 393,218,607 207,006,545

TOTAL LIABILITIES AND EQUITY 1,178,178,779 950,108,663


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PT ARUTMIN INDONESIA INTERIM STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010 (Unaudited) (Expressed in United States Dollar, unless otherwise stated)

2011 2010Notes (six months) (six months)

SALES 21 1,004,888,104 623,866,355

COST OF SALES 22 548,282,160 412,377,719

GROSS PROFIT 456,605,944 211,488,636

OPERATING EXPENSES 23Selling and marketing 74,809,710 47,717,355 General and administrative 46,536,842 39,478,894

Total Operating Expenses 121,346,552 87,196,249

OPERATING INCOME 335,259,392 124,292,387

OTHER INCOME (EXPENSES)Gain (loss) on foreign exchange - net 10 16,551,759 (1,430,973) Port fees 2,851,800 2,322,600 Interest income 1,128,843 135,254 Write-off of deferred exploration and

development costs 13 (20,359,163) - Tax penalty - (452,850) Others - net 1,854,249 2,390,935

Other Income - Net 2,027,488 2,964,966

INCOME BEFORE INCOME TAXBENEFIT (EXPENSE) 337,286,880 127,257,353

INCOME TAX BENEFIT (EXPENSE)Current 17b (143,996,496) (60,623,391) Deferred 17c (7,078,322) 3,386,084

Income Tax Expense - Net (151,074,818) (57,237,307)

NET INCOME 186,212,062 70,020,046

OTHER COMPREHENSIVE INCOME - -

TOTAL COMPREHENSIVE INCOME 186,212,062 70,020,046

September 30,


4

PT ARUTMIN INDONESIA INTERIM STATEMENTS OF CHANGES IN EQUITY FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010 (Unaudited) (Expressed in United States Dollar, unless otherwise stated)

Capital RetainedStock Earnings Total Equity

Balance as of April 1, 2010 1,000,000 50,705,303 51,705,303

Net income for the period - 70,020,046 70,020,046

Balance as of September 30, 2010 1,000,000 120,725,349 121,725,349

Balance as of April 1, 2011 1,000,000 206,006,545 207,006,545

Net income for the period - 186,212,062 186,212,062

Balance as of September 30, 2011 1,000,000 392,218,607 393,218,607


5

PT ARUTMIN INDONESIA INTERIM STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010 (Unaudited) (Expressed in United States Dollar, unless otherwise stated)

2011 2010(six months) (six months)

CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers 977,894,425 618,091,000 Receipts from interest income 279,653 135,254 Payments to suppliers. employees and others (665,192,228) (523,279,086) Payments of taxes (239,580,108) (77,609,243) Payments to government (68,686,283) -

Net Cash Provided by (Used in) Operating Activities 4,715,459 17,337,925

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of fixed assets (6,216,723) (3,974,096) Disbursements for deferred exploration and

development costs (3,168,649) (3,443,882) Placement of restricted time deposits and deposits

for reclamation (2,170,567) (2,989,031)

Net Cash Used in Investing Activities (11,555,939) (10,407,009)

CASH FLOWS FROM FINANCING ACTIVITIESMovements of due from/to related parties - net 59,970,682 (17,180,912) Loans to shareholders (35,800,000) -

Net Cash Provided by (Used in) Financing Activities 24,170,682 (17,180,912)

NET INCREASE (DECREASE) IN CASH 17,330,202 (10,249,996)

CASH AT BEGINNING OF PERIOD 18,131,303 30,202,954

CASH AT END OF PERIOD 35,461,505 19,952,958

September 30,

PT ARUTMIN INDONESIA NOTES TO THE INTERIM FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (Unaudited) AND MARCH 31, 2011 (Audited) AND FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010 (Unaudited) (Expressed in United States Dollar, unless otherwise stated)

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1. GENERAL

a. Company’s Establishment and General Information PT Arutmin Indonesia (the “Company”) was established in the Republic of Indonesia on October 31, 1981 under the framework of Presidential Decree No. 49 of 1981, Mining Law No. 11 of 1967 and Foreign Capital Investment Law No. 1 of 1967 (as amended by Law No. 11 of 1970). The Company’s Articles of Association have been amended several times, the most recent being on August 15, 2008 to be in accordance with the Republic of Indonesia Law No. 40 of 2007 concerning Limited Liability Companies. The said amendment was approved by the Ministry of Law and Human Rights of the Republic of Indonesia on January 5, 2009. The Company’s amendment of Articles of Association was published in the State Gazette No. 59 dated July 24, 2009, Supplement No. 19341. The Company’s scope of activities comprises exploration and exploitation of coal deposits including mining, processing, disposal and sale of such coal. The Company’s head office is located at the 14th Floor of Bakrie Tower Building, Rasuna Epicentrum, Jalan H.R. Rasuna Said, Jakarta 12960.

b. Coal Contract of Work On November 2, 1981, the Company entered into a Coal Contract of Work (CCOW) with PT Tambang Batubara Bukit Asam (PTBA) (formerly Perusahaan Negara Tambang Batubara) for the exploration and exploitation of coal deposits in an area known as Block VI in the southeastern part of Kalimantan, Indonesia. In accordance with the terms of the CCOW, the Company commenced its 30-year operating period on October 1, 1989, with PTBA entitled to 13.5% of production. Effective July 1, 1997, the CCOW was amended whereby all rights and obligations of PTBA were transferred to the Government of Indonesia (GOI) represented by the Ministry of Mines and Energy (Note 26a).

c. Boards of Commissioners and Directors and Employees The members of the Company’s Boards of Commissioners and Directors as of September 30, 2011 and March 31, 2011 were as follows: September 30, 2011 March 31, 2011

Board of Commissioners President Commissioner Nalinkant Amratlal Rathod Ari Saptari Hudaja Commissioner Kenneth Patrick Farrell Kenneth Patrick Farrell Commissioner Raden Ajeng Sri Dharmayanti Raden Ajeng Sri Dharmayanti Commissioner Anil Kumara Sardana Prasad Raghava Menon Commissioner Banmali Agarwala Banmali Agarwala Board of Directors President Director Ari Saptaari hudaja Nalinkant Amratlal Rathod Director Evan William Ball Evan William Ball Director Robert Bismarka Kurniawan Robert Bismarka Kurniawan Director Sowmyan Ramakrishnan Sowmyan Ramakrishnan Director Minesh Shri Krishna Dave Minesh Shri Krishna Dave Total remuneration paid to Commissioners and Directors of the Company for the six-month periods ended September 30, 2011 and 2010 amounted to USD20,512 and USD19,576, respectively. As of September 30, 2011 and March 31, 2011, the Company had a total of 421 and 417 permanent employees, respectively (unaudited).


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Preparation of the Financial Statements

The financial statements have been prepared in accordance with Indonesian Financial Accounting Standards (“SAK”), which comprise the statements and interpretations issued by the Board of Financial Accounting Standards of the Indonesian Institute of Accountants. As disclosed further in the relevant succeeding notes, several amended and published accounting standards were adopted effective April 1, 2011. PSAK No. 1 (Revised 2009), “Presentation of Financial Statements”, regulates presentation of financial statements as to, among others, the objective, component of financial statements, fair presentation, materiality and aggregate, offsetting, distinction between current and non-current assets and short-term and long-term liabilities, comparative information and consistency and introduces new disclosures such as, among others, key estimations and judgments, capital management, other comprehensive income, departures from accounting standards and statement of compliance. The adoption of PSAK No. 1 (Revised 2009) had significant impact in the financial statements as follows: 1) change in the title from balance sheets to statements of financial position; 2) change in the presentation of changes in equity and of comprehensive income -

non-owner changes in equity are now presented in one statements of comprehensive income; and

3) additional disclosures required, among others: consideration in determination of applying accounting policy, source of estimation uncertainty and capital management.

PSAK No. 3 (Revised 2010), “Interim Financial Reporting”, regulates minimum presentation of interim financial statements, and also the principles of recognition and measurement in the complete or condensed interim financial statements. With the adoption of PSAK No. 3 (Revised 2010), the Company presented statements of financial position as of end of the current interim period and as of end of the immediately preceding financial year. Prior to April 1, 2011, the Company presented such statements as of end of the current interim period and as of end of the previous interim period. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the financial statements for the year ended March 31, 2011, except for the adoption of several amended SAKs effective April 1, 2011 as referred to above and other SAKs described in the related accounting policies and the changes in accounting estimates disclosed in the related notes. The financial statements, except for the statements of cash flows, are prepared under the accrual basis of accounting, with the measurement basis being historical cost, except for certain accounts that are measured on the basis described in the related accounting policies. As required under the CCOW, the Company maintains its books in United States Dollar (USD). The reporting currency used in the preparation of financial statements is the USD, which is also the functional currency of the Company. The statements of cash flows present receipts and payments of cash classified into operating, investing and financing activities. Cash flows are presented using the direct method.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

b. Cash Cash includes cash on hand and in banks that are not used as collateral or restricted in use.

c. Restricted Cash Restricted cash in banks that will be used to pay currently maturing obligations is presented under current assets. Other current accounts and time deposits that are restricted in use for more than one (1) year are presented under non-current assets.

d. Financial Instruments The Company applied PSAK No. 50 (Revised 2006), “Financial Instruments: Presentation and Disclosures”, and PSAK No. 55 (Revised 2006), “Financial Instruments: Recognition and Measurement”. Financial assets Financial assets are recognized initially at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss (FVTPL), which are initially measured at fair value. Financial assets are classified as financial assets at FVTPL, held-to-maturity (HTM) investments, loans and receivables or available-for-sale (AFS) financial assets. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates the designation of such assets at each reporting date. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are carried at amortized cost using the effective interest rate method, less any allowance for impairment. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process. The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. Financial liabilities The Company determines the classification of its financial liabilities at initial recognition. Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Financial liabilities are classified as financial liabilities at FVTPL, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, inclusive of directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process. The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or expired.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Amortized cost of financial instruments Amortized cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

e. Trade Receivables Trade receivables consist of sales of coal to third-party customers. These are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less any allowance for impairment. Allowance for impairment is provided when there is objective evidence that the outstanding amounts of the trade receivables will not be collected based on a review of the status of the individual receivable accounts at the end of the reporting period.

f. Inventories Inventories are stated at the lower of cost or net realizable value. Cost of coal inventories is determined using the moving-average method. Cost of spare parts and consumable supplies is determined using the weighted-average method. Allowance for obsolescence is provided based on a review of the condition of inventories at the end of the reporting period.

g. Prepaid Expenses Prepaid expenses are amortized on a straight-line basis over the periods benefited.

h. Fixed Assets The Company applied PSAK No. 16 (Revised 2007), “Fixed Assets”. Based on the revised PSAK, an entity shall choose between the cost model and revaluation model as the accounting policy for its fixed assets measurement. The Company has chosen the cost model as the accounting policy for its fixed assets measurement. Fixed assets are stated at cost less accumulated depreciation and any impairment value. Depreciation is applied from the month such assets were placed into service, on a straight-line basis, so as to allocate the cost of fixed assets over their estimated economic useful life or the remaining term of the CCOW, whichever period is shorter. The ranges of useful life by major asset classification are as follows: Years

Machinery and equipment 3 - 20 Furniture, fixtures and office equipment 3 - 8 Transportation equipment 3 - 8 At each end of period, the assets’ residual value and useful lives are reviewed, and if appropriate, adjusted prospectively.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Construction-in-progress is stated at cost and presented as part of “Fixed Assets” in the statements of financial position. The accumulated costs will be reclassified to the appropriate fixed assets account when construction is substantially complete and the asset is ready for its intended use. The cost of repairs and maintenance is charged to profit or loss as incurred; replacement or major inspection costs are capitalized when incurred and if it is probable that future economic benefits associated with the item will flow to the Company, and the cost of the item can be measured reliably. An item of fixed assets is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset is included in profit or loss in the period the asset is derecognized.

i. Impairment of Non-Financial Assets Effective April 1, 2011, the Company applied PSAK No. 48 (Revised 2009), “Impairment of Assets”. The revised PSAK prescribes the procedures to be employed by an entity to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and this revised PSAK requires the entity to recognize an impairment loss. This revised PSAK also specifies when an entity should reverse an impairment loss and prescribes disclosures. The adoption of PSAK No. 48 (Revised 2009) did not have significant impact in the financial statements. The Company evaluates at each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset or a cash generating unit is the higher of its fair value less costs to sell and its value in use. Whenever the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The impairment loss is recognized immediately in profit or loss. Recovery of impairment loss recognized in prior periods is recorded when there is an indication that the impairment loss recognized for the asset no longer exists or has decreased. The recovery is recognized in profit or loss. However, the increase in carrying amount of an asset due to a recovery of an impairment loss is recognized to the extent that it does not exceed the carrying amount that would have been determined (net of depreciation and amortization) had no impairment loss been recognized for that asset in prior periods.

j. Deferred Exploration and Development Costs Exploration and evaluation costs are expensed as incurred unless the exploration project has reached a stage where the expenditures are expected to be recovered through development or sale, in which case, subsequent expenditures are capitalized as deferred exploration and development costs. Deferred exploration and development costs include expenditures relating to general surveys, exploration, financing, feasibility studies and development of the mine incurred prior to the commencement of operations. Deferred exploration and development costs are amortized using the unit-of-production method from the date of commercial production of the respective area of interest based on estimated proven and probable reserves, but not exceeding the remaining term of the CCOW. The carrying value of deferred exploration and developments costs of each area of interest is reviewed regularly and to the extent that this value exceeds its recoverable value, the excess is provided for or written-off in the period in which this is determined.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Effective April 1, 2011, the Company changed its method of amortization of deferred exploration and development costs from straight-line method to unit-of-production method, which is deemed to be a more reasonable basis from the expected pattern of the future economic benefits of such expenditures as assessed by the management. The effect of the change in the amortization method is treated as a change in accounting estimate under PSAK No. 25 (Revised 2009), “Accounting Policies, Changes in Accounting Estimates and Errors”.

k. Deferred Stripping Costs Stripping cost of top soil is divided into: (i) initial stripping of the overburden to open the mining area before production commences (recognized under “Deferred Exploration and Development Costs” account); and (ii) additional stripping that is performed during the production activity (recognized under “Deferred Stripping Costs” account). Deferred stripping costs are amortized using the unit-of-production method from the date of commercial production of the respective area of interest based on estimated proven and probable reserves, but not exceeding the term of the CCOW. The carrying value of deferred stripping costs of each area of interest is reviewed regularly and to the extent that this value exceeds its recoverable value, the excess is provided for or written-off in the period in which this is determined.

l. Estimated Liability for Restoration and Rehabilitation The Company’s policy is to meet or surpass the requirements of the CCOW and all applicable environmental regulations issued by the GOI, by application of technically proven and economically feasible measures. The Company’s environmental management actions include, but are not limited to, top soil replacement, dredging of sediment ponds and dams, water quality control and waste handling, planting and seeding. Estimated liability for restoration and rehabilitation costs are based principally on legal and regulatory requirements. Such estimated costs as a result of production activities are expensed under cost of sales. Estimates are reassessed regularly and the effects of changes are recognized prospectively.

m. Revenue and Cost and Expense Recognition Effective April 1, 2011, the Company adopted PSAK No. 23 (Revised 2010), “Revenue”. The revised PSAK identifies the circumstances in which the criteria on revenue recognition will be met and, therefore, revenue may be recognized, and prescribes the accounting treatment of revenue arising from certain types of transactions and events, and also provides practical guidance on the application of the criteria on revenue recognition. The adoption of PSAK No. 23 (Revised 2010) did not have significant impact in the financial statements. Sales are recognized when the title for the Company’s entitlement of coal passes to the customer and selling prices are known or can be reasonably estimated. Sales are presented net of quality claims and customer rejections. All sales are denominated in USD. Under the terms of the CCOW, at no time can the Company take title to or purchase the GOI’s share of coal. The GOI may transport from the mine process facilities its share of coal or may request the Company to sell all or part of its share of coal. The Company is entitled to an administrative fee for the GOI’s share of such shipment. The Company’s sales reflect the sale of the Company’s coal entitlement and amounts pertaining to the GOI’s coal entitlement that have been shipped and sold by the Company as agent for the GOI. Costs and expenses are recognized when incurred (accrual basis).


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) n. Transactions with Related Parties

The Company has transactions with certain parties, which have a related party relationship, as defined in PSAK No. 7 (Revised 2010), “Related Party Disclosures”, which is effective April 1, 2011. The revised PSAK requires disclosure of related party relationship, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent, and also applies to individual statements. Furthermore, disclosure of compensation in total and for each category of compensation given to all key management personnel is also required. With the adoption of PSAK No. 7 (Revised 2010), the Company disclosed key management personnel compensation (Note 1c). The transactions are made based on terms agreed by the parties, whereas such terms may not be the same as those transactions with third parties. All significant transactions with related parties, whether or not conducted under the same terms and conditions as those with third parties, are disclosed in the notes to the financial statements.

o. Employee Benefits The Company adopted PSAK No. 24 (Revised 2004), “Employee Benefits”, to determine its employee benefits obligation. The Company provides defined post-employment benefit for its covered employees under the Labor Law No. 13/2003 dated March 25, 2003 (the “Law”) pursuant to the terms of the Collective Labor Agreement (CLA). Under Revised PSAK 24, the cost of employee benefits based on the Law is determined using the “Projected Unit Credit” actuarial valuation method. Actuarial gains or losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the higher of the 10% of the defined benefit obligation and 10% of the fair value of plan assets at that date. These gains or losses are recognized on a straight-line basis method over the expected average remaining working lives of the employees. Past service cost arising from the introduction of a defined benefit plan or changes in the benefits obligation of an existing plan are required to be amortized over the period until the benefits concerned become vested. The employee benefits obligation recognized in the statements of financial position represents the present value of defined benefit obligation, adjusted for unrecognized actuarial gains and losses, unrecognized past service cost and the fair value of the plan assets, if any.

p. Foreign Exchange Transactions and Translations Transactions in currencies other than USD are recorded at the prevailing rates of exchange in effect on the date of the transactions. As of reporting date, all foreign currency monetary assets and liabilities are translated at the middle exchange rates quoted by Bank Indonesia on that date. The resulting net foreign exchange gains or losses are recognized in profit or loss. The Company used middle rate at Rp8,823 and Rp8,709 as published by Bank Indonesia to translate Indonesian Rupiah (Rp) to USD as of September 30, 2011 and March 31, 2011, respectively.

q. Income Taxes Current tax expense is provided based on the estimated taxable income for the period. Deferred tax assets and liabilities are recognized for temporary differences between the financial and the tax bases of assets and liabilities at each reporting date. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax liabilities are recognized for all taxable temporary differences. Future tax benefits, such as the carry-forward of unused tax losses, are also recognized to the extent that realization of such benefits is probable.


13

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. The tax rates specified in the CCOW are used to determine deferred tax. Under the CCOW (Note 1b), the annual tax rate is 35% during the first full ten (10) years from commencement of the operating period and 45% during the remainder of the operating period. Amendments to tax obligations are recorded when an assessment is received and/or, if objected to and/or appealed against by the Company, when the result of the objection and/or appeal is determined.

r. Provisions and Contingencies Effective April 1, 2011, the Company adopted PSAK No. 57 (Revised 2009), “Provisions, Contingent Liabilities, and Contingent Assets”. The revised PSAK is applied prospectively and provides that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and to ensure that sufficient information is disclosed in the notes to enable users to understand the nature, timing and amount related to the information. The adoption of PSAK No. 57 (Revised 2009) did not have significant impact in the financial statements. Provisions are recognized when the Company has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements, but are disclosed when an inflow of economic benefits is probable.

s. Adoption of Other Revised Accounting Standards and Interpretations Other than the revised accounting standards previously mentioned, the following revised accounting standards and interpretations which are also effective on April 1, 2011, but did not have a significant impact in the financial statements: 1) PSAK No. 2 (Revised 2009), "Statements of Cash Flows". 2) PSAK No. 8 (Revised 2010), "Events after the Reporting Period". 3) PSAK No. 19 (Revised 2009), "Intangible Assets". 4) PSAK No. 25 (Revised 2009), “Accounting Policies, Changes in Accounting Estimates and

Errors”. 5) PSAK No. 58 (Revised 2009), “Non-current Assets Held for Sale and Discontinued

Operations”. 6) ISAK No. 9, “Changes in Existing Decommissioning, Restoration and Similar Liabilities”. 7) ISAK No. 11, “Distribution of Non-Cash Assets to Owners”. 8) ISAK No. 17, “Interim Financial Reporting and Impairment”.


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3. SOURCES OF ESTIMATION UNCERTAINTY The preparation of the financial statements, in conformity with Indonesian Financial Accounting Standards, requires management to make judgments, estimations and assumptions that affect amounts reported therein. These judgments, estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Due to inherent uncertainty in making estimates, actual results reported in future periods may differ from those estimates. Nevertheless, the Company’s management has taken reasonable care in the selection and application of these judgments, estimates and assumptions. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are disclosed below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions as they occur. The following judgments, estimates and assumptions were made by management in the process of applying the Company’s accounting policies that have the most significant effects on the amounts recognized in the financial statements: Determining classification of financial assets and financial liabilities The Company determines the classifications of certain assets and liabilities as financial assets and financial liabilities by judging if they meet the definition set forth in PSAK No. 55 (Revised 2006). Accordingly, the financial assets and financial liabilities are accounted for in accordance with the Company’s accounting policies disclosed in Note 2. Determining fair value of financial instruments Where the fair value of financial assets and financial liabilities recorded on the reporting date cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs. Any changes in fair values of these financial assets and liabilities would affect directly the Company’s profit or loss. The carrying amount of financial assets carried at fair values amounted to USD429,516,490 as of September 30, 2011 and USD406,738,875 as of March 31, 2011. While the carrying amount of financial liabilities carried at fair values is USD174,054,982 as of September 30, 2011 and USD163,106,254 as of March 31, 2011. Further details are contained in Note 25. Assessing impairment of receivables The Company evaluates specific accounts where it has information that certain customers are unable to meet their financial obligations. In these cases, the Company uses judgment, based on available facts and circumstances, including but not limited to, the length of its relationship with the customer and the customer’s current credit status based on any available third party credit reports and known market factors, to record specific provisions for customers against amounts due to reduce its receivable amounts that the Company expects to collect. These specific provisions are re-evaluated and adjusted as additional information received affects the allowance for impairment.


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3. SOURCES OF ESTIMATION UNCERTAINTY (Continued) Allowance for impairment of trade receivables amounted to USD161,834 as of September 30, 2011 and March 31, 2011 (Note 6), while allowance for impairment of other receivables amounted to USD1,321,410 as of September 30, 2011 and March 31, 2011. Estimating allowance for decline in market value and obsolescence of inventories Allowance for decline in market value and obsolescence of inventories is estimated based on available facts and circumstances, including but not limited to, the inventories’ own physical conditions, their market selling prices, estimated costs of completion and estimated costs to be incurred for their sales. The provisions are re-evaluated and adjusted as additional information received affects the amount estimated. Allowance for inventory obsolescence amounted to USD2,793,678 as of September 30, 2011 and March 31, 2011 (Note 9). Determining depreciation method of fixed assets The costs of fixed assets are depreciated on a straight-line basis over their estimated useful lives. Management properly estimates the useful lives of these fixed assets to be within three (3) to twenty (20) years. These are common life expectancies applied in the industries where the Company conducts its businesses. Changes in the expected level of usage and technological development and the remaining term of the CCOW could impact the economic useful lives and the residual values of these assets, and therefore future depreciation charges could be revised. The carrying amount of the Company’s fixed assets amounted to USD49,517,689 as of September 30, 2011 and USD47,468,029 as of March 31, 2011. Further details are disclosed in Note 12. Determining coal reserve estimates The Company uses the coal reserves reports in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2004 edition) (the “2004 JORC Code”), prepared and published by The Joint Ore Reserves Committee (JORC) of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia. Under the 2004 JORC Code, the term “coal resource” refers to a concentration or occurrence of coal of intrinsic economic interest in or on the earth’s crust in such form and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a coal resource are known, estimated or interpreted from specific geological evidence and knowledge. Coal resources are subdivided, in order of increasing geological confidence, into “inferred,” “indicated” and “measured” categories. The term “coal reserve” is defined in the 2004 JORC Code as the economically mineable part of a measured and indicated coal resource. Coal reserves are subdivided in order of increasing confidence into “probable coal reserves” and “proved coal reserves.” Reserves, and for certain mines, other mineral resources, determined in this way are used in the calculation of depreciation, amortization and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing of the payment of close-down and restoration costs and clean-up costs. In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence of economic extraction.


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3. SOURCES OF ESTIMATION UNCERTAINTY (Continued) There are numerous uncertainties inherent in estimating reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in changes to reserve estimates. Determining overburden removal estimates for amortizing deferred stripping costs The Company amortizes deferred stripping costs incurred during the production stage using the estimated overburden or waste to be removed, which is based on proved and probable reserves of the mine/pit and is also highly dependent on the design of the mine/pit and on the technical and economic parameters assumed over the life of the mine/pit. The Company’s contractors review this estimate on a regular basis. The carrying amount of the Company’s deferred stripping costs amounted to USD274,181,264 as of September 30, 2011 and USD94,434,157 as of March 31, 2011. Further details are disclosed in Note 14. Assessing impairment of certain non-financial assets PSAK No. 48 (Revised 2009) requires that an impairment review be performed on certain non-financial assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The factors that the Company considers important which could trigger an impairment review include the following: (a) significant underperformance relative to the expected historical or project future operating results; (b) significant changes in the manner of use of the acquired assets or the strategy for overall

business; and (c) significant negative industry or economic trends. An impairment loss is recognized whenever the carrying amount of a non-financial asset exceeds its recoverable amount. Determining the recoverable amount of such assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. As of September 30, 2011 and March 31, 2011, the Company assessed that there is no indication of impairment on its fixed assets, deferred stripping costs and other non-current assets accounts, except for write-off of certain deferred exploration and development costs totaling USD20,359,163 (Note 13). Estimating provision for environmental restoration and rehabilitation Parameters having a significant influence on the amount of provisions relating to environmental restoration and rehabilitation include the timing of expenditure and the discount rate applied to cash flows, as well as the actual level of expenditure. These parameters are based on information and estimates available to the Company at the current time, including the life of mine and the remaining term of the CCOW. The amounts required to be provided for environmental remediation are subject to ongoing regulatory change in Indonesia, subsequent to the issuance of the new Law on Minerals and Coal Mining on January 11, 2009. As the Government of Indonesia’s implementation of new requirements becomes clearer, there may be a need to revise the rehabilitation provision.


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3. SOURCES OF ESTIMATION UNCERTAINTY (Continued) In addition, cost estimates can vary in response to many other factors including, the emergence of new restoration techniques or experience at other mine sites. The expected timing of expenditure can also change, for example in response to changes in reserves or production rates. As a result, there could be significant adjustments to the provision, which would affect future financial results. Estimated liability for restoration and rehabilitation amounted to USD115,171,764 as of September 30, 2011 and USD106,497,082 as of March 31, 2011. Further details are discussed in Note 19. Determining employee benefits cost and obligation The determination of the Company’s obligations and costs for employee benefits is dependent on its selection of certain assumptions used by the independent actuaries in calculating such amounts. Those assumptions include among others, discount rates, annual salary increase rate, annual employee turn-over rate, disability rate, retirement age and mortality rate. Actual results that differ from the Company’s assumptions which effects are more than 10% of the defined benefit obligations are deferred and being amortized on a straight-line basis over the expected average remaining service years of the qualified employees. While the Company believes that its assumptions are reasonable and appropriate, significant differences in the Company’s actual results or significant changes in the Company’s assumptions may materially affect its employee benefits cost and obligation. The Company’s employee benefits obligation is USD11,927,417 as of September 30, 2011 and USD11,040,993 as of March 31, 2011. Further details are discussed in Note 24. Assessing income tax Determining provision for income tax requires significant judgment by management. There are certain transactions and computation for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for expected income tax issues based on estimates of whether additional income tax will be due. The Company reviews its deferred tax assets at each reporting date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilized. The Company also reviews the expected timing and tax rates upon reversal of temporary differences and adjusts the impact of deferred tax accordingly. The Company’s taxes payable amounted to USD129,720,683 as of September 30, 2011 and USD162,682,987 as of March 31, 2011 (Note 17a). The Company’s deferred tax assets amounted to USD6,034,798 as of September 30, 2011 and USD12,888,283 as of March 31, 2011 (Note 17c). Evaluating provisions and contingencies The Company is currently involved in various legal and tax proceedings. The management exercises its judgment to distinguish between provisions and contingencies mainly through consultation with the Company’s legal counsel handling those proceedings. The Company sets up appropriate provisions for its present legal or constructive obligations, if any, in accordance with its policies on provisions. In recognizing and measuring provisions, the management takes risk and uncertainty into account. As of September 30, 2011 and March 31, 2011, the Company did not believe that those proceedings will have a significant adverse effect in its financial statements.


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4. FINANCIAL RISK MANAGEMENT The Company’s policies with regard to financial risk management are clearly defined and consistently applied. They are a fundamental part of the Company’s long-term strategy covering areas such as foreign exchange risk, commodity price risk, interest rate risk, credit risk, liquidity risk and capital management. The Company is heavily dependent on coal which has a positive relationship to the global economic cycle. Financial risk management is under the direct supervision of the Board of Directors and especially the Chief Financial Officer (CFO). The CFO has a central treasury department which follows policies approved the Risk Management Division and Board Directors. The department identifies and evaluates financial risks in close cooperation with the Company’s operating units. The Risk Management Division and Board of Directors provide written principles for overall financial risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment in excess of liquidity. The Company does not acquire or issue derivative financial instruments for trading or speculative purposes. Credit risk Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily from customer receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments. Customer credit risk is managed through established policies, procedures and controls relating to customer credit risk management. Where customers are rated by an independent credit rating agency, these ratings are used to set credit limits. In circumstances where no independent credit rating exists, the management assesses the credit quality of the counterparties and satisfies itself that there is no significant risk associated with them. The Company’s maximum exposure to credit risk is equal to the carrying amount the financial instruments, net of value of collaterals if any, as follows:

September 30, March 31,2011 2011

Cash in banks 35,441,118 18,116,534 Trade receivables - net 101,802,738 74,809,059 Other receivables - net 7,284,644 5,887,215 Due from related parties - current 189,477,664 249,739,492 Due from related parties - non-current 180,000 560,000 Loans to shareholders 69,153,966 33,353,966 Other current financial assets 4,202,858 6,020,790 Other non-current financial assets 21,953,115 18,237,050

Total Credit Risk Exposure 429,496,103 406,724,106

The management assessed the credit quality of the counterparties for which no external credit rating is available and is satisfied that there is no significant risk associated with them. The Company has no significant concentration of credit risk with any counterparty. Liquidity risk The Company monitors rolling forecasts of its liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom so that it does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration, but not limited to, compliance with internal targets and, where applicable, external regulatory and legal requirements.


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4. FINANCIAL RISK MANAGEMENT (Continued) The contractual maturity of the Company’s trade payables, due to related parties and other current liabilities accounts is within one (1) year. Foreign exchange risk The management believes that the Company is naturally hedged against foreign exchange risk. All of the Company’s sales are priced, invoiced and paid in USD. Most of its cost of sales, operating expenses and capital expenditures were denominated and paid in USD. However, some other costs and expenses are denominated in Rp such as salaries and employee benefits. Weakening of the Rp against the USD may cause operating income to increase, whereas strengthening of the Rp against the USD may cause operating income to decline. However further, the Company does not have a significant exposure to foreign exchange risk, since those costs and expenses denominated in Rp represents an insignificant portion of its total costs and expenses. Nevertheless, the Company regularly monitors its transactions in currencies other than USD and maintains them at a level responsive to current exchange rates to minimize such risk. Commodity price risk The Company faces commodity price risk because coal is a commodity product bought and sold on the world markets. Prices for its coal are based on global coal prices, which tend to be highly cyclical and subject to significant fluctuations. The Company also faces commodity price risk in purchases of fuel necessary to run its operations. The Company currently does not engage in any hedging activities related to the price of either coal or fuel. However, it may do so in the future. Interest rate risk The Company’s interest-bearing financial instruments consist of cash in banks and time deposits under other current assets and other non-current assets. These financial instruments are short-term in nature and have minimal interest rates, thus any variation in the interest rate will not have significant impact in profit or loss. Capital management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The capital management objective remains the same as for the previous period. Consistent with others in the industry, the Company monitors capital on the basis of gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the statements of financial position) plus amounts due to related parties less cash. Total capital is calculated as equity as shown in the statements of financial position plus net debt. The gearing ratios as of September 30, 2011 and March 31, 2011 were as follows:


Total borrowings and due to related parties 8,160,545 8,831,691 Less cash 35,461,505 18,131,303

Cash over (27,300,960) (9,299,612) Equity 393,218,607 207,006,545

Net capital 365,917,647 197,706,933

Gearing Ratio N/A N/A


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5. CASH This account consists of:


Cash on hand 20,387 14,769

Cash in banksUnited States Dollar

Hong Kong and Shanghai Banking Corporation 25,199,220 12,278,995 PT ANZ Panin Bank 1,015,659 1,980,145 PT Bank Mega Tbk 141,469 - PT Bank Danamon Indonesia Tbk 104,645 104,677 PT Bank Central Asia Tbk 102,532 92,765 Standard Chartered Bank 9,068 20,340 PT Bank Negara Indonesia (Persero) Tbk 1,261 1,276 PT Bank Mandiri (Persero) Tbk 1,221 1,276

Sub-total 26,575,075 14,479,474

Indonesian RupiahHong Kong Shanghai Banking Corporation 3,361,242 412,528 PT Bank Mega Tbk 2,578,530 878,675 PT Bank Negara Indonesia (Persero) Tbk 1,140,191 1,516,747 PT ANZ Panin Bank 642,989 714,619 PT Bank Mandiri (Persero) Tbk 398,720 58,804 PT Bank Rakyat Indonesia (Persero) Tbk 385,200 50,859 PT Bank Central Asia Tbk 356,567 2,169 PT Bank Danamon Indonesia Tbk 2,604 2,659

Sub-total 8,866,043 3,637,060

Total 35,461,505 18,131,303

6. TRADE RECEIVABLES This account consists of:


Local customers 46,371,528 52,800,535 Overseas customers 55,593,044 22,170,358

Total 101,964,572 74,970,893 Less allowance for impairment (161,834) (161,834)

Net 101,802,738 74,809,059


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6. TRADE RECEIVABLES (Continued) The aging schedule of trade receivables was as follows:


Current 89,864,123 51,486,758 1 to 30 days due 3,102,673 7,224,581 31 to 90 days due 526,443 7,788,221 Over 90 days due 8,471,333 8,471,333

Total 101,964,572 74,970,893 Less allowance for impairment (161,834) (161,834)

Net 101,802,738 74,809,059

The Company’s management believed that the allowance for impairment as of September 30, 2011 and March 31, 2011 is adequate to cover possible losses from the non-collection of trade receivables.

7. TRANSACTIONS AND BALANCES WITH RELATED PARTIES The Company, in the ordinary course of its business, engages in transactions with certain related parties, principally consisting of sales, marketing services advances and financial transactions. The summary of outstanding balances resulting from transactions with related parties was as follows:


Due from Related PartiesCurrent

IndoCoal Resources (Cayman) Limited 171,396,394 244,433,667 Bhira Investment Limited 254,757 - PT Mitratama Perkasa 16,575,071 1,370,585 PT Darma Henwa Tbk 1,250,331 3,935,240 PT Bumi Resources Mineral Tbk 1,111 -

Sub-total 189,477,664 249,739,492

Non-currentPT Darma Henwa Tbk 180,000 560,000

Total 189,657,664 250,299,492

Loans to Shareholders (Note 8)PT Bumi Resources Tbk 48,407,776 23,347,776 Bhira Investment Limited 20,746,190 10,006,190

Total 69,153,966 33,353,966

Employee ReceivablesCurrent 2,609,786 1,136,864 Non-current (Note 15) 502,304 534,912

Total 3,112,090 1,671,776


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7. TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued)


Due to Related PartiesPT Bumi Resources Tbk 4,166,229 5,074,579 Bhivpuri Investment Limited 3,000,000 3,000,000 PT Kaltim Prima Coal 994,316 757,112

Total 8,160,545 8,831,691

Trade Payables (Note 16)PT Petromine Energy Trading (Note 26j) 13,885,852 20,398,065 PT Darma Henwa Tbk 11,517,665 3,326,938

Total 25,403,517 23,725,003

a. Due from IndoCoal Resources (Cayman) Limited (ICRL) represents receivables on sale of coal by

the Company to ICRL and administration costs for making available coal in accordance with the LTSA (Note 26b). For the six-month periods ended September 30, 2011 and 2010, the Company made gross sales of USD417,375,765 and USD411,917,999, respectively, to ICRL. Total quantity sold to ICRL for the six-month periods ended September 30, 2011 and 2010 amounted to 3,579,610 tonnes and 5,117,429 tonnes, respectively.

b. Due from Bhira Investment Limited (Bhira) represents accrued interest receivable in relation to the inter-company loan facility agreement (Note 8).

c. Due from PT Mitratama Perkasa (Mitratama) pertains to project costs of Mitratama’s port in West Mulia Site paid by the Company on behalf of Mitratama.

d. Due from PT Darma Henwa Tbk (PTDH) pertains to project costs paid by the Company on behalf of PTDH and advances for acquisitions of heavy machinery at the Asam-asam mine site. Such advances will be settled in installment by reducing the amounts payable to PTDH as follows: (1) USD3,000,000 in 30 consecutive monthly installments starting April 2009; (2) USD336,000 in 12 monthly installments starting June 2009; (3) USD500,000 in 25 monthly installments starting April 2010; (4) USD1,500,000 in 25 monthly installments starting December 2010; and (5) USD3,123,214 in 6 monthly installments starting February 2011.

e. Due to PT Bumi Resources Tbk (Bumi) represent management fees (Note 26h) and other expenses paid by Bumi on behalf of the Company, net of accrued interest receivable in relation to inter-company loan facility agreement (Note 8). The related management fees expense amounting to USD23,333,333 for the six-month periods ended September 30, 2011 and 2010 are recorded as part of “Management Fees” in the statements of comprehensive income.

f. Due to Bhivpuri Investment Limited (Bhivpuri) represents balance of management fees payable to Bhivpuri (Note 26h). The related management fees expense amounting to USD10,000,000 for the six-month periods ended September 30, 2011 and 2010 are recorded as part of “Management fees” in the statements of comprehensive income.

g. Due to PT Kaltim Prima Coal (KPC) represents various expenses paid by KPC in behalf of the Company, including mining and transport services.

h. The Company paid exclusivity service fees to PT Nusa Tambang Pratama (NTP) amounting to USD6,841,111 for the six-month period ended September 30, 2011 in accordance with the Mining Services Agreements (Note 26e).


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7. TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued)

i. Employee receivables represent non-interest bearing loans granted by the Company to its employees. These loans will be collected through monthly salary deductions. Current portion of employee receivables is included under “Other receivables” account, while its non-current portion is under “Other non-current assets” account in the statements of financial position.

The nature of related party relationships as of September 30, 2011 and March 31, 2011 are as follows: Related Parties Nature of Relationship

PT Bumi Resources Tbk Shareholder Bhira Investment Limited, Mauritius Shareholder Bhivpuri Investment Limited, Cyprus Affiliate PT Darma Henwa Tbk Affiliate IndoCoal Resources (Cayman) Limited, Cayman Islands Affiliate PT Kaltim Prima Coal Affiliate PT Petromine Energy Trading Affiliate PT Mitratama Perkasa Affiliate PT Nusa Tambang Pratama Affiliate The affiliated companies are either under common control of the same shareholders and/or same members of the boards of directors or commissioners as the Company or entities that have significant influence over the Company or entities over which the Company has significant influence. Because of these relationships, it is possible that the terms of transactions are not the same as those that would result from transactions between third parties.

8. LOANS TO SHAREHOLDERS

This account consists of:


PT Bumi Resources Tbk 48,407,776 23,347,776 Bhira Investment Limited 20,746,190 10,006,190

Total 69,153,966 33,353,966

Details of the Company’s loan agreements are as follows: a. On September 14, 2011, the Company and Bumi has entered into an Inter-Company Loan Facility

Agreement effective October 29, 2010, under which the Company has agreed to provide loan from time to time to Bumi up to a value of USD350 million. The loan shall be repayable on demand only out of the dividends received by Bumi from the Company. This loan shall carry interest of 3 months LIBOR plus 2% per annum based on the outstanding loan amount and shall be payable quarterly by Bumi to the Company.

As of September 30, 2011 and March 31, 2011, the outstanding principal amount of loan withdrawn by Bumi amounted to USD48,407,776 and USD23,347,776, respectively. The accrued interest amounting to USD594,433 as of September 30, 2011 is recorded as part of “Due to related parties” account.


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8. LOANS TO SHAREHOLDERS (Continued)

b. On September 14, 2011, the Company and Bhira has entered into an Inter-Company Loan Facility Agreement effective October 29, 2010, under which the Company has agreed to provide loan from time to time to Bhira up to a value of USD150 million. The loan shall be repayable on demand only out of the dividends received by Bhira from the Company. This loan shall carry interest of 3 months LIBOR plus 2% per annum based on the outstanding loan amount and shall be payable quarterly by Bhira to the Company.

As of September 30, 2011 and March 31, 2011, the outstanding principal amount of loan withdrawn by Bhira amounted to USD20,746,190 and USD10,006,190, respectively. The accrued interest amounting to USD254,757 as of September 30, 2011 is recorded as part of “Due from related parties” account.

9. INVENTORIES



Spare parts and consumable supplies 8,796,521 8,943,312 Less allowance for obsolescence (2,793,678) (2,793,678)

6,002,843 6,149,634 Coal 10,901,424 28,240,808

Net Realizable Value 16,904,267 34,390,442

In accordance with the CCOW, spare parts and consumable supplies recorded in the Company’s financial statements remain the property of the GOI, with an exclusive right of use granted to the Company. As of September 30, 2011 and March 31, 2011, the management believed that the allowance provided for obsolescence is adequate to cover possible losses arising from obsolescence. Inventories are covered by insurance from all risks for a coverage amount of approximately USD30,000,000 as of September 30, 2011 and March 31, 2011, under a one-year policy agreement. The management believed that the insurance coverage is adequate to cover possible losses arising from such risks.

10. VALUE-ADDED TAX RECOVERABLE Under Government Regulation No. 144/2000 dated December 22, 2000, effective January 1, 2001, coal is defined as non-taxable goods that are not subject to Value-Added Tax (VAT), representing a change in the VAT treatment of coal. As a result of the change in the VAT treatment of coal, the Tax Office has taken the position that VAT input incurred for the production of coal is not creditable and, therefore, has not refunded the VAT amounts claimed by the Company since 2001 (Note 27b). With the exception of the taxes included under the CCOW, the GOI (as successor of PTBA) is required to pay and assume and hold the Company harmless from all present and future Indonesian taxes, duties, rentals and royalties levied by the GOI. Indonesian VAT is not a tax that is specifically provided for in the CCOW. In the event that the Company or any party paying tax on behalf of the Company is entitled to be held harmless, the GOI is required to reimburse the Company or person paying such tax within sixty (60) days after receipt of the related invoice.


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10. VALUE-ADDED TAX RECOVERABLE (Continued) The Company had submitted claims to and had discussed with the Directorate General of Energy and Mineral Resources (as representative of the GOI) all VAT amounts outstanding beyond sixty (60) days. The GOI has not yet made a decision on this matter. The Company expects to recover all VAT amounts reflected in the financial statements based on the provisions of the CCOW. Prior to April 1, 2011, the carrying value of VAT recoverable was computed based on Rp exchange rates prevailing when the VAT was claimed. The Company used the historical exchange rate as the GOI has not yet clarified the exchange rate that would be used in the settlement of this matter. However, from the discussions with the Indonesian Mining Association (IMA) and other first-generation coal producing companies, the Company’s management now believes that it is more likely that the VAT will be refunded in Rp in monetary form and, therefore, not offset against government entitlement. Therefore, the VAT recoverable as of September 30, 2011 was recomputed based on the closing exchange rate. The effect of the change in translation method from historical exchange rates to closing exchange rate was treated as a change in accounting estimate in accordance with PSAK No. 25 (Revised 2009). The balance of VAT recoverable recognized in the statements of financial position amounted to USD318,669,851 as of September 30, 2011 using the closing exchange rate, and USD263,141,981 as of March 31, 2011 using the historical exchange rate. Foreign exchange gain resulting from the translation using closing exchange rate amounted to USD17,076,633 for the six-month period ended September 30, 2011 and was recorded under “Other Income (Expenses)”.

11. OTHER CURRENT ASSETS This account consists of:


Prepaid expenses 7,365,903 7,976,992 Deposits for reclamation 3,149,485 2,740,799 Short-term time deposits 1,053,373 3,279,991 Advances 1,647,190 2,363,680

Total 13,215,951 16,361,462

Advances consist of advances to contractors and suppliers. Details of prepaid expenses were as follows:


Prepaid mining expense 5,110,404 3,000,000 Rental 1,105,248 1,557,568 Forestry fee 1,049,079 2,964,259 Insurance 25,271 358,690 Others 75,901 96,475

Total 7,365,903 7,976,992

Forestry fee (PNBP Forestry) is the annual prepayment to the GOI for the use of the land crossing forestry for the year 2011 in line with Government Regulation (GR) No. 2 dated February 4, 2008.


26

11. OTHER CURRENT ASSETS (Continued) Deposits for reclamation represent time deposits for reclamation in the form of performance bonds in accordance with Ministry Regulation No.18/2008 (Note 27i). These deposits have maturities of one (1) year or less and consist of:


United States DollarPT ANZ Panin Bank 935,179 2,740,799

Indonesian RupiahPT Bank Mega Tbk 2,214,306 -

Total 3,149,485 2,740,799

Short-term time deposits are used as collaterals for the issuance of bank guarantee certificates in relation to the Company’s project with PT PLN Persero (PLN), a state-owned company, over the Steam Fired Power Plants (PLTU) in Asam-asam site (Note 26i) and other customers. These deposits have maturities of one (1) year and consist of:


United States DollarPT ANZ Panin Bank 1,053,373 960,625

Indonesian RupiahPT Bank Central Asia Tbk - 2,192,076 PT ANZ Panin Bank - 127,290

Total 1,053,373 3,279,991

The interest rates earned on the Company’s deposits for reclamation and short-term time deposits were as follows:


United States Dollar 0.10% 0.10%Indonesidan Rupiah 2.50% - 5.75% 2.50% - 5.50%

12. FIXED ASSETS

The movements of this account were as follows:

Balance as of Balance as ofApril 1, September 30,

2011 Additions Reclassification 2011

Acquisition Cost:Machinery and equipment 302,309,577 1,696,978 328,878 304,335,433 Furniture, fixtures and office equipment 10,111,565 358,721 10,470,286 Transportation equipment 7,837,056 55,858 7,892,914

Sub-total 320,258,198 2,111,557 328,878 322,698,633 Construction-in-progress 3,575,346 4,105,166 (328,878) 7,351,634

Total 323,833,544 6,216,723 - 330,050,267


27

12. FIXED ASSETS (Continued)

Balance as of Balance as ofApril 1, September 30,


Accumulated Depreciation:Machinery and equipment 259,827,398 3,920,406 263,747,804 Furniture, fixtures and office equipment 9,345,148 187,330 9,532,478 Transportation equipment 7,192,969 59,327 7,252,296

Total 276,365,515 4,167,063 - 280,532,578

Carrying Value 47,468,029 49,517,689

Balance as of Balance as ofApril 1, March 31,


Acquisition Cost:Machinery and equipment 295,647,891 2,435,132 4,226,553 302,309,576 Furniture, fixtures and office equipment 9,715,270 383,162 13,133 10,111,565 Transportation equipment 7,676,654 144,608 15,793 7,837,055

Sub-total 313,039,815 2,962,902 4,255,479 320,258,196 Construction-in-progress 5,181,201 2,649,626 (4,255,479) 3,575,348

Total 318,221,016 5,612,528 - 323,833,544

Accumulated Depreciation:Machinery and equipment 252,678,154 7,149,245 - 259,827,399 Furniture, fixtures and office equipment 9,013,877 331,271 - 9,345,148 Transportation equipment 7,088,633 104,335 - 7,192,968

Total 268,780,664 7,584,851 - 276,365,515

Carrying Value 49,440,352 47,468,029

Depreciation charged to operations was as follows:


Cost of sales (Note 22) 2,428,673 1,906,098 Operating expenses (Note 23) 1,738,390 1,738,389

Total 4,167,063 3,644,487

September 30,

In accordance with the CCOW, fixed assets recorded in the Company’s financial statements remain the property of the GOI, with the Company having an exclusive right to use the assets over their useful life or the remaining term of the CCOW, whichever period is shorter. All fixed assets were covered by insurance from all risks with total sums insured of USD418,041,489 as of September 30, 2011 and March 31, 2011, under a one-year policy agreement. The management believed that this insurance coverage is adequate to cover possible losses from such risks. As of September 30, 2011 and March 31, 2011, the Company did not recognize any impairment of fixed assets and the management believed that there were no circumstances that would give rise to asset impairment.


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13. DEFERRED EXPLORATION AND DEVELOPMENT COSTS The movements in this account were as follows:


CostDeferred exploration costs 25,591,752 25,591,752 Deferred development costs 25,446,080 42,636,594

Sub-total 51,037,832 68,228,346

Accumulated AmortizationBalance at beginning of the period 27,485,884 26,632,826 Amortization of deferred exploration and development costs during the period 426,529 853,058

Balance at end of the period 27,912,413 27,485,884

Carrying Value 23,125,419 40,742,462

Deferred exploration and development costs consist of costs related to the development of the Satui and Senakin Underground projects, exploration in Bunati, and land compensation. In 2007, the Company decided to change its mining activities in Satui from underground to open-pit and has informed the Directorate General of Mineral Geology, Coal and Geothermal of the termination of the Satui underground mining project with Tunnel Mining Australia Pty Ltd. By the end of December 2007, the Company entered into an open-pit mining agreement with PT Wahana Baratama Mining (WBM) in the Satui concession area. In January 2010, the feasibility study for this project was approved by the GOI as represented by the Ministry of Energy and Mineral Resources. On February 9, 2009, the Company and PT Thiess Contractors Indonesia (Thiess) signed the Amended and Restated Operating Agreement Mining Services (Note 26e). Pits under the said agreement were called Life of Mine (LOM) 2 pits, whereby the open-pit was to be mined under open-cut method. However, the agreement did not cover the whole amount of coal under that pit and there were options to mine the rest of coal using underground mining method. After prolonged negotiation and considering the high price of coal, the Company and Thiess agreed to mine the open-pit in full under the open-cut method and signed the joint mine plan on June 21, 2011. After the signed mine plan is completely adhered, there would be no coal left in the open-pit using underground mining method in the future in respect of coal recovery. Due to those circumstances, the management decided to write-off the costs related to Satui underground mining project amounting to USD20,359,163. As of September 30, 2011, the scoping study of the Senakin Underground project has been completed. As of the completion date of the financial statements, the Company is preparing to start the feasibility study.


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14. DEFERRED STRIPPING COSTS The movements in this account were as follows:


Cost 317,689,242 131,328,915

Accumulated AmortizationBalance at beginning of the period 36,894,758 27,690,870 Amortization of deferred stripping costs

during the period 6,613,220 9,203,888

Balance at end of the period 43,507,978 36,894,758

Carrying Value 274,181,264 94,434,157

Amortization of deferred stripping costs is included under contractor costs in the “Cost of sales” account.

15. OTHER NON-CURRENT ASSETS This account consists of:


Recoverable from contractors for futurerehabilitation costs 56,255,443 51,962,347

Royalty deposit 11,334,013 11,482,374 Long-term time deposits 10,083,598 6,095,099 Long-term prepayments 946,782 841,217 Employee receivables - non-current (Note 7) 502,304 534,912 Others 81,681 173,146

Total 79,203,821 71,089,095

Recoverable from contractors represent the rehabilitation costs chargeable to the contractors on the disturbed areas that remain non-rehabilitated as of reporting date (Note 19). Royalty deposit represents payment equivalent to Rp100 billion to the Department of Energy and Mineral Resources as a commitment fund relating to the dispute over Coal Production Proceeds (Notes 10 and 27b). Long-term time deposits are used as collaterals for the issuance of bank guarantee certificates in relation to the Company’s project with PLN over the Steam Fired Power Plants (PLTU) in Asam-asam site (Note 26i). These deposits have maturities of (2) years and consist of:


Indonesian RupiahPT Bank Mega Tbk 9,158,068 1,384,834 PT Bank Central Asia Tbk 925,530 4,710,265

Total 10,083,598 6,095,099


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16. TRADE PAYABLES This account consists of:


Third partiesPT Putra Perkasa Abadi 7,064,995 2,744,332 PT Bukit Makmur Mandiri Utama 6,919,429 18,107,053 PT Energy Transporter Indonesia 2,979,295 3,318,668 PT Rig Tender Indonesia 2,276,627 4,236,353 PT Sky Pelayaran Indonesia 1,166,694 4,224,497 Enercorp Ltd. 1,113,924 2,788,671 Others 11,399,063 7,900,230

Sub-total 32,920,027 43,319,804

Related Parties (Note 7)PT Petromine Energy Trading (Note 26j) 13,885,852 20,398,065 PT Darma Henwa Tbk 11,517,665 3,326,938

Sub-total 25,403,517 23,725,003

Total 58,323,544 67,044,807

17. TAXATION

This account consists of: a. Taxes Payable

September 30, March 31,

2011 2011

Value-Added Tax 490,575 663,931 Income taxes:

Article 21 164,638 388,673 Article 23 4,381,038 3,856,216 Article 25 10,763,785 1,338,740 Article 29 113,920,647 156,435,427

Total 129,720,683 162,682,987


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17. TAXATION (Continued) b. Tax Expense

Reconciliation between income before income tax benefit (expense) as shown in statements of comprehensive income and the estimated taxable income for the six-month periods ended September 30, 2011 and 2010 were as follows:


Income before income tax benefit (expense)per statements of comprehensive income 337,286,880 127,257,353 Temporary differences (15,729,606) 7,524,631 Permanent differences (1,565,060) (63,338)

Taxable income 319,992,214 134,718,646

Current income tax expense 143,996,496 60,623,391

Prepayment of income taxesArticle 23 (90,070) (3,343) Article 22 (195,468) (293,913) Article 25 (70,082,711) (6,239,024)

Total prepayment of income taxes (70,368,249) (6,536,280)

Income Tax Payable - Article 29 73,628,247 54,087,111

September 30,

As provided in the CCOW (Note 1b), the Company is subject to the following: (1) Payment of corporate income tax at the rate of 35% of its taxable income for the first

ten (10) years from the commencement of the operating period (through 2000) and at the rate of 45% for the remaining operating period (through 2019);

(2) Pre-payment of monthly corporate income tax (Income Tax - Article 25); (3) Payment of withholding taxes on royalties, interest, remuneration of employees and other

payments made by the Company, including, but not limited to, fees for technical services based on the prevailing laws and regulations in Indonesia (Income Tax - Articles 23 and 26);

(4) Payment of personal income taxes, Regional Development Tax (IPEDA) and other taxes as

specified in the CCOW (Income Tax - Article 21); and (5) Sales taxes on services rendered to the Company in accordance with prevailing laws and

regulations in Indonesia, but at rates not exceeding 5% (Sales Tax on Services).


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17. TAXATION (Continued)

c. Deferred Tax The tax effects of the temporary differences between the financial reporting and tax bases of assets and liabilities for the six-month periods ended September 30, 2011 and 2010, at tax rate of 45% were as follows:


Amortization of deferred stripping costs (8,498,192) 2,216,647 Depreciation 829,041 541,474 Net change in employee benefits obligation 398,891 436,025 Amortization of deferred exploration and

development costs 191,938 191,938

Deferred Tax Benefit (Expense) (7,078,322) 3,386,084

September 30,

The significant components of the Company’s deferred tax assets and liabilities represent the deferred income tax effects of the following:


Deferred Tax AssetsEmployee benefits obligation 5,367,338 4,968,447 Allowance for impairment on trade and

other receivables 667,460 667,460 Deferred stripping costs - 7,252,376

Total 6,034,798 12,888,283

Deferred Tax LiabilitiesFixed assets 16,314,398 17,143,439 Deferred exlporation and development costs 3,166,980 3,358,918 Deferred stripping costs 1,245,816 -

Total 20,727,194 20,502,357

Deferred Tax Liabilities - Net 14,692,396 7,614,074

d. Tax Collection Letters

1. In March and April 2011, the Company received Tax Collection Letters (Surat Tagihan Pajak)

concerning the Company’s liability to pay underpayment and administration fines related to the underpayment of the monthly installment of corporate income tax for the months of December 2010 to February 2011 amounting to USD11,710,004. In May 2011, the Company sent Cancellation Request Letters to the Directorate General of Tax to object the assessments. In the meantime, the Company initially paid USD5,000,000 in June 2011 for tax Article 25 for the months of January and February 2011 as deposit for those assessments. Based on the decision letters received in September 2011, the Directorate General of Tax rejected the Company’s Cancellation Request Letters. As of the completion date of the financial statements, the Company is planning to prepare second Cancellation Request Letters to the Directorate General of Tax.


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17. TAXATION (Continued) 2. In August 2011, the Company received Tax Collection Letters (Surat Tagihan Pajak)

concerning the Company’s liability to pay underpayment and administration fines related to the underpayment of the monthly installment of corporate income tax for the months from March to May 2011 amounting to USD22,964,589. The Company sent Cancellation Request Letter to the Directorate General of Tax in September 2011 to object the assessment for the month of March 2011, while it is planning to prepare Cancellation Request Letters for the months of April and May 2011 as of the completion date of the financial statements. In the meantime, the Company initially paid USD18,580,144 in September 2011 for tax Article 25 for the months from March to May 2011 as deposit for those assessments.

18. OTHER CURRENT LIABILITIES



Mining expenses 78,556,945 62,875,151 Shipping expenses 17,584,635 16,937,512 Marketing commissions (Note 26d) 11,339,038 7,324,304 Others 90,275 92,789

Total 107,570,893 87,229,756

19. ESTIMATED LIABILITY FOR RESTORATION AND REHABILITATION

The movements in this account were as follows:


Balance at beginning of the period 106,497,082 94,761,619 Provision for restoration and rehabilitation

during the period 10,825,562 13,215,412 Actual expenditures during the period (2,150,880) (1,479,949)

Balance at end of the period 115,171,764 106,497,082 Less current portion 8,518,623 8,620,440

Non-current Portion 106,653,141 97,876,642

Restoration and rehabilitation activities were carried out for the whole mine areas. As of September 30, 2011 and March 31, 2011, total disturbed area amounted to 10,189 hectares and 9,408 hectares, respectively, of which 3,728 hectares and 3,331 hectares, respectively, were restored and rehabilitated. In 2010, the Company revised its assumptions, with changes to inflation and discount rates and timing of cash flows, among others, in calculating the estimated liability for restoration and rehabilitation. The change in assumptions was applied prospectively.


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20. CAPITAL STOCK As of September 30, 2011 and March 31, 2011, the Company’s authorized, issued and paid-in capital amounted to USD1 million (10,000 shares at a par value of USD100 per share). The composition of the Company’s shareholders and their respective percentage of ownership as of September 30, 2011 and March 31, 2011 were as follows:

Number of Percentage ofShared Issued Ownership

Shareholders and Fully Paid % Amount

PT Bumi Resources Tbk 700 70% 700,000 Bhira Investment Limited 300 30% 300,000

Total 1,000 100% 1,000,000

The Company is covered under the terms of the Shareholders’ Agreement entered on March 30, 2007 among Bumi, the IndoCoal Group Companies [consisting of the Company, KPC, ICRL, PT Indo Kaltim Resources (Indo Kaltim) and PT Indo Kalsel Resources (Indo Kalsel)], the Bumi Resources Group (consisting of PT Sitrade Coal, Kalimantan Coal Limited, Sangatta Holding Limited, and Forerunner International Pte Ltd.), and Tata Power Company Limited (Tata), the ultimate parent company of Bhira. Although Bumi holds more than 50% ownership interest in the Company, control over the key operational and financial decisions in respect of the Company are jointly exercised by Bumi and Tata, and accordingly the Company is accounted for as a jointly controlled entity.

21. SALES



Export sales 887,470,934 565,193,062 Local sales 117,417,170 58,673,293

Total 1,004,888,104 623,866,355

September 30,

The Company’s sales include amounts pertaining to the GOI’s coal entitlement under the CCOW (Notes 1b and 26a).


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22. COST OF SALES This account consists of:


Stripping and mining costs Contractor costs (Note 14) 307,972,932 245,467,915 Consumable materials 62,257,165 51,213,362 Salaries and benefits 10,081,689 8,131,383 Maintenance and spare parts 1,455,695 1,121,918 Others 16,963,141 11,709,609

Sub-total 398,730,622 317,644,187

Government entitlement - net (Note 26a) 115,918,485 72,437,758 Coal processing and other production costs 13,438,467 6,263,880 Depreciation and amortization (Notes 12 and 13) 2,855,202 2,332,627

Sub-total 132,212,154 81,034,265

Total production costs 530,942,776 398,678,452 Add beginning inventories 28,240,808 22,933,859 Less ending inventories (10,901,424) (9,234,592)

Total 548,282,160 412,377,719

September 30,

23. OPERATING EXPENSES



Selling and marketingMarketing and commissions (Note 26d) 43,207,713 26,492,591 Freight 21,099,890 13,889,448 Demmurage 5,358,337 6,403,666 Salaries 586,103 324,357 Others 4,557,667 607,293

Sub-total 74,809,710 47,717,355

General and administrativeManagement fees (Notes 7e, 7f and 26h) 33,333,333 33,333,333 Exclusivity service fees (Notes 7h and 26e) 6,841,111 - Depreciation (Note 12) 1,738,390 1,738,389 Salaries 1,623,858 1,430,937 Employee benefits (Note 24) 1,268,030 1,230,448 Professional fees 776,973 721,385 Others 955,147 1,024,402

Sub-total 46,536,842 39,478,894

Total 121,346,552 87,196,249

September 30,


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24. EMPLOYEE BENEFITS OBLIGATION The Company has an unfunded defined benefit pension plan covering substantially all of its eligible permanent employees. Calculation of employee benefits in accordance with Labor Law No. 13/2003 dated March 25, 2003 (the “Labor Law”) and the Company’s Collective Labor Agreement (CLA) as of September 30, 2011 and March 31, 2011 was made based on the actuarial reports of PT Dayamandiri Dharmakonsilindo, an independent actuarial firm, dated October 10, 2011 and dated April 4, 2011, respectively, using the “projected unit credit” method with the following assumptions: Discount rate : 7.25% per annum on September 30, 2011 and 8.50% per annum on March 31, 2011 Salary growth rate : 7.25% per annum on September 30, 2011 and 8.50% per annum on March 31, 2011 Mortality rate : Based on the US 1980 Commissioners’ Standard Ordinary Table of Mortality Normal retirement age : 55 years old (all employees are assumed to retire at normal retirement age) Disability rate : 10% of Mortality Rate Resignation rate : 5% at age 20 reducing linearly to 1% at age 45 years and thereafter Analysis of the employee benefits obligation recognized in the Company’s statements of financial position as of September 30, 2011 and March 31, 2011 were as follows:


Present value of the defined benefit obligation 14,443,046 14,276,802 Fair value of plan assets - -

Unfunded status 14,443,046 14,276,802 Unrecognized actuarial loss (2,341,792) (3,041,430) Past service cost - non-vested (173,837) (194,379)

Employee Benefits Obligation 11,927,417 11,040,993

Amounts recognized in the statements of comprehensive income in respect of these employee benefits were as follows:


Current service cost 596,138 545,415 Interest cost 571,273 564,027 Net actuarial loss recognized 82,588 103,179 Amortization of past service cost 18,031 17,827

Provision for Employee Benefits 1,268,030 1,230,448

September 30,


37

24. EMPLOYEE BENEFITS OBLIGATION (Continued) The movements of the employee benefits obligation in the statements of financial position were as follows:


Balance at beginning of the period 11,040,993 9,223,233 Provision for employee benefits during the period 1,268,030 2,476,181 Employee benefits paid (238,948) (1,088,394) Effects of foreign exchange (142,658) 429,973

Balance at End of the Period 11,927,417 11,040,993

25. FINANCIAL INSTRUMENTS

The following table set forth the carrying values and fair values of the Company’s financial instruments that are carried in the statements of financial position as of September 30, 2011 and March 31, 2011:

Carrying Value Fair Value Carrying Value Fair Value

Financial AssetsCash 35,461,505 35,461,505 18,131,303 18,131,303 Trade receivables - net 101,802,738 101,802,738 74,809,059 74,809,059 Other receivables - net 7,284,644 7,284,644 5,887,215 5,887,215 Due from related parties - current 189,477,664 189,477,664 249,739,492 249,739,492 Due from related parties - non-current 180,000 180,000 560,000 560,000 Loans to shareholders 69,153,966 69,153,966 33,353,966 33,353,966 Other current financial assets 4,202,858 4,202,858 6,020,790 6,020,790 Other non-current financial assets 21,953,115 21,953,115 18,237,050 18,237,050

Total 429,516,490 429,516,490 406,738,875 406,738,875

Financial LiabilitiesTrade payables 58,323,544 58,323,544 67,044,807 67,044,807 Due to related parties 8,160,545 8,160,545 8,831,691 8,831,691 Other current liabilities 107,570,893 107,570,893 87,229,756 87,229,756

Total 174,054,982 174,054,982 163,106,254 163,106,254

March 31, 2011September 30, 2011

The carrying values of cash, trade receivables-net, other receivables-net, due from related parties, loans to shareholders, other current financial assets, other non-current financial assets, trade payables, due to related parties and other current liabilities approximate their fair values largely due to the short-term maturity of these financial instruments.


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26. COMMITMENTS AND SIGNIFICANT AGREEMENTS a. Joint Coal Sales Agreement

On September 30, 1991, the Company entered into a Joint Coal Sales Agreement (JCSA) with PTBA under which both parties agree to sell the coal produced, in connection with the CCOW for a five-year period ending January 1, 1997, which was subsequently extended by both parties as agreed to in writing. Subsequently, the JCSA was amended, transferring all rights and obligations of PTBA to the GOI, represented by the Ministry of Mines and Energy, effective July 1, 1997. The JCSA expired on October 1, 2006. As of the date of completion of the financial statements, the renewal of the agreement is still in process. The JCSA stipulates that the Company is entitled to 86.5% of the coal sales proceeds, while the remaining balance of 13.5% will be for the account of and owned by the GOI, which is accounted for under “Government Entitlement” account in the cost of sales. The GOI appointed the Company as its sole agent to sell its coal entitlement pursuant to the JCSA, and the GOI is required to pay a sales administration fee of 2.5% from FOB price for the portion of each shipment to which the GOI is entitled. Furthermore, the Company is responsible for administering and performing all contracts entered into by either the Company or the GOI for the sale of coal. All sales revenue shall also be collected and all costs shall be paid by the Company. However, the GOI shall bear its share of the apportionable expenses, as defined in the JCSA, of each shipment in the ratio applicable to such shipments.

b. Long-Term Supply Agreement

On July 6, 2005, the Company entered into a LTSA with ICRL under which the Company agreed to sell coal to ICRL at a fixed forward price of USD34.30 per tonne based on a calorific value of 6,322 kcal/kg (as adjusted for variations in the calorific values). The agreement will expire upon the termination of the Company’s CCOW (Note 1b). Under the agreement, ICRL guarantees that its marketing agents will accept the Company’s coal production (regardless of quantity, type, quality and cost), consult with the Company when entering into contracts with customers and keep the Company notified at all times of the details of each contract, and any renewal, variation or termination thereof. On June 26, 2007, the Company’s LTSA was amended and restated as part of the 30% Share Divestment of the Company, KPC, ICRL, PT IndoCoal Kalsel Resources (Indo Kalsel) and PT IndoCoal Kaltim Resources (Indo Kaltim). On July 1, 2008, the Company and ICRL entered into a third LTSA Amendment and Restatement Agreement, under which the Company will sell all of the coal it produces to ICRL at a fixed price of USD60.80 per tonne of coal based on a calorific value of 6,322 kcal/kg (GAR). The fixed forward prices of USD34.30 per tonne and USD60.80 per tonne were based on the Index Pricing Advice in May 2005 and May 2008, respectively, from Barlow Jonker, a Wood Mackenzie company, which was retained by Bumi to provide consulting services with respect to thermal coal pricing outcomes in Indonesia for bituminous and sub-bituminous coal. On December 21, 2009, the Company and ICRL entered into a fourth LTSA Amendment and Restatement Agreement, under which the Company will sell the coal it produces to ICRL at the applicable market price or the price as determined in the contracts between ICRL and its customers starting January 1, 2009. The agreement will end on the earlier date of the expiration or termination of the CCOW, including any extensions thereof.


39

26. COMMITMENTS AND SIGNIFICANT AGREEMENTS (Continued) c. Cash Distribution Agreement

On June 27, 2007, Bumi, Bhivpuri, the Coal Companies (the Company, KPC, ICRL, Indo Kaltim and Indo Kalsel), Bank of New York, Standard Chartered Bank and each Principal Contractor (Thiess, PT Pamapersada Nusantara [PAMA], PTDH and PT Cipta Kridatama Mining [CKM]) and each Principal Marketing Agent (Glencore Coal (Mauritius) Ltd., Mitsubishi Corporation, BHP Billiton Marketing AG [BHP Marketing] and Enercorp Ltd.) entered into a CDA. Under this agreement, the parties agreed to implement certain account administration and cash management arrangements in relation to the revenues of the Company and KPC, and certain payment arrangements, including the amounts owed by the Company and KPC pursuant to the Principal Contractor Agreements and the Marketing Agreements. The CDA will end on the earlier date of the expiration or termination of the CCOW, including any extensions thereof.

d. Marketing Agreements 1. On October 6, 2003, the Company entered into a Marketing Services Agreement with

Enercorp, under which Enercorp shall act as the exclusive marketing agent of the Company for coal sales within Indonesia for a commission of 4% of net sales value for each shipment of domestic coal. On June 14, 2004, there was Additional Commission Agreement, whereby the Company shall provide selling expenses in the maximum amount of 3.5% of the total amount of sales proceeds from PT Indonesia Power, apart from the 4% commission.

On July 6, 2006, the Enercorp Marketing Services Agreement was amended and restated in

order to make ICRL and Indo Kalsel parties to the Marketing Services Agreement. Under the Amended and Restated Marketing Services Agreement, Enercorp agreed to provide marketing services to the Company, ICRL, and Indo Kalsel (following a transfer of the Company’s CCOW to Indo Kalsel).

On July 25, 2011, the Company, Enercorp, Indo Kalsel and ICRL signed a deed of

termination, which stated that all parties mutually agreed to terminate the Amended and Restated Marketing Services Agreement.

2. On July 6, 2005, the Company, BHP Marketing, ICRL, and Indo Kalsel entered into a new

Marketing Services Agreement, under which BHP Marketing shall provide marketing services to the Company, ICRL and Indo Kalsel (following a transfer of the Company’s CCOW to Indo Kalsel). BHP Marketing is entitled to receive a commission of 4% of net sales value for all export coal sold, other than coal sold by the Company to ICRL under the LTSA or coal sold by Indo Kalsel to ICRL under a Conditional LTSA. The new Marketing Services Agreement expires on November 29, 2011.

3. On July 25, 2011, the Company entered into a Marketing Services Agreement with Forestdale

Pte. Limited (Forestdale), Indo Kalsel and ICRL under which Forestdale shall act as the exclusive marketing agent of the Company for coal sales within Indonesia for a commission of 4% of net sales value for each shipment of domestic coal.

On the same date, the Company and Forestdale entered into an Additional Commission Agreement, whereby the Company shall provide selling expenses to Forestdale in the maximum amount of 3.5% of the total amount of sales proceeds from PT Indonesia Power, apart from the 4% commission. This agreement is effective and binding as long as the Company’s coal sales contract with PT Indonesia Power becomes available.


40

26. COMMITMENTS AND SIGNIFICANT AGREEMENTS (Continued) e. Operating Agreements

1. Thiess Operating Agreement On October 19, 2000, the Company signed an operating agreement for mining services with

Thiess for the operation and maintenance of the Satui and Senakin mines. Under this agreement, Thiess shall provide plant, equipment, facilities, services, materials, supplies (other than the items to be provided by Company as listed in the agreement), labor and management required. As compensation, the Company shall pay Thiess service fees, the amount of which are calculated in accordance with the rates and formula set forth in the agreement.

On October 8, 2003, the operating agreement was amended to make its term concurrent with

the lives of the mine sites for which Thiess is required to provide operational and maintenance services under the operating agreement.

On July 6, 2005, the operating agreement was amended to make Indo Kalsel a party to the

operating agreement. Under the amended operating agreement, Thiess shall provide mining services to Indo Kalsel in the event that the Company’s CCOW is transferred to Indo Kalsel. In addition, the operating agreement was amended to permit the Company to assign its rights under the operating agreement to the Bank of New York, as security trustee and to modify the termination and payment provisions.

On February 9, 2009, the above operating agreement was amended and restated with regard

to price adjustments for existing work, interim pricing for new work and revised escalation components and weightings.

The operating agreement will end on the earlier of the date of termination of the CCOW or the date when all economical open cut coal reserves at the sites have been exhausted.

2. WBM Mining Agreement In August 24, 2007, the Company and PT Wahana Baratama Mining (WBM) entered into an

agreement for the construction and operation of the haul roads passing through the Company’s CCOW area. The Company is allowing WBM to construct a temporary haul road along an agreed alignment across the Company’s concession to be subsequently replaced by a permanent haul road when the Company has completed mining activities in the vicinity of that permanent alignment.

In December 2007, the Company and PT Wahana Baratama Mining entered into an

agreement for the mining of coal on the common boundary in the Satui concession site to maximize the exploitation of the coal reserve and to address some operational issues as a result of the common boundary such as mine plan nomination, each party’s rights to coal, pit limit boundary, coal and cost sharing mechanism, coal mining parameters, overburden dumping, safety and environmental issues, land compensation, dewatering, surveys, agreement rates, invoicing and payment, and resolution of disputes.

The agreements are valid until the earlier occurrence of the termination of WBM’s mining

agreement or the Company’s CCOW.


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26. COMMITMENTS AND SIGNIFICANT AGREEMENTS (Continued) 3. Cooperation Agreement On December 12, 2001, the Company entered into a Cooperation Agreement with Puskopad

B Kodam VI Tanjungpura No. SNK/01/C02/R to overcome illegal mining activities in the Satui and Senakin mine areas. The agreement commenced on December 1, 2002 and expired on December 1, 2003. The agreement has since been renewed every year, the latest commenced September 22, 2010 until September 21, 2011. As of the completion date of the financial statements, the Company is still finalizing for the renewal of the agreement to extend the term until September 21, 2012.

4. Bokormas Mining Project Agreement On March 1, 2006, the Company signed a two-year cooperation agreement for mining

services with PT Bokormas Wahana Makmur (Bokormas) in the Asam-asam and Batulicin mine areas. Under this agreement, Bokormas shall provide labor, funds, materials, equipment, transportation and accommodation, supervision and administration to carry out the work under the agreement.

On June 26, 2007, the cooperation agreement for the Batulicin mine was amended

adding Perusahaan Daerah Bersujud (PDB) as a contractor to mine the Company’s mining lease areas at PKP2B (CCOW) DU-306/Kalsel (ATA), DU-310/Kalsel (Mangkalapi) and DU-309/Kalsel (Mereh) in the District of Tanah Bumbu, South Kalimantan, Indonesia and to extend the contract period to December 31, 2008.

Subsequently, the cooperation agreement has been extended several times, the latest

expiring on December 31, 2011 or until the obligations of the parties have been completed as mutually agreed, whichever occurs first.

5. Pit 1 Senakin Operating Agreement On September 1, 2008, the Company entered into an Operating Agreement with PT Bukit

Makmur Mandiri Utama (BUMA) to perform the services at Pit 1 Senakin area, and, in the same year, both parties entered into Strategic Agreement Mining Services in Senakin mine whereby BUMA is to be engaged by the Company to perform the mining services at a part of the Company’s Senakin mine on the terms of the Operating Agreement. Due to the potential longevity and variables of the project, the Company and BUMA desire to enter into the Strategic Agreement to enhance the business relationship of the parties to deliver optimum project outcomes.

Should the parties agree not to extend the term of Operating Agreement, then the agreement

shall terminate on December 31, 2011, unless terminated earlier in accordance with the agreement and the Strategic Agreement shall terminate upon the date of the expiration or termination of the Operating Agreement.

6. Operating Agreement for Pit 4-7 Senakin On October 28, 2010, the Company entered into an Operating Agreement for Pit 4-7 Senakin

with BUMA wherein the Company has engaged BUMA to perform the services at Pit 4-7 Senakin. Also, on October 28, 2010, both parties entered into the Strategic Agreement Mining Services for Senakin mine whereby BUMA has been engaged by the Company to perform the mining services at part of the Company’s Senakin area on the terms of the Operating Agreement. Due to the potential longevity and variables of the project, the Company and BUMA desire to enter into the Strategic Agreement to enhance the business relationship of the parties to deliver optimum project outcomes. BUMA shall function as the custodian of Senakin mine. BUMA shall mine coal, maintain the connecting haul roads, and shall plan and operate the mining and coal transportation operation in accordance with the provisions of the Service Contract.


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26. COMMITMENTS AND SIGNIFICANT AGREEMENTS (Continued) Should the parties agree not to extend the term of Operating Agreement, then the agreement

shall terminate on exhaustion of the mineable reserves within Pit 4-7 agreed mine shell unless terminated earlier in accordance with the agreement and the Strategic Agreement shall terminate upon the date of the expiration or termination of the Operating Agreement.

7. CKM Mining Service Agreement

On July 1, 2006, the Company entered into an agreement with CKM regarding the open-cut mining project in the Batulicin area. As stipulated in the agreement, CKM will be responsible for supplying all labor, plant, materials, equipment, supervision and administration necessary to carry out the work under the contract. CKM is also responsible for the care of property and all produce, materials, and other items taken or extracted from the site (including coal) from the commencement date until delivery into the possession or control of the Company. On November 18, 2009, the CKM Mining Service Agreement was amended for changes in the pit shell and strip ratio.

The contract will continue throughout the life of mine in Batulicin (ATA and Mangkalapi)

unless otherwise terminated.

8. PTDH Operating Agreement On March 22, 2007, the Company signed an operating agreement with PTDH to provide coal

mining and handling services in the Asam-asam mine area. Both parties recognized that at the date of the execution of the agreement, the Company has not yet completed the studies that are necessary to determine the detailed scope of the services. Upon completion, the Company will turn over these studies to PTDH, who shall then, in consultation with the Company, develop a detailed scope of the services. Variations to the services may be required from time to time.

The Company may, from time to time, require PTDH to provide varied services that may

include the removal of overburden and site rehabilitation works at the Asam-asam mine area. PTDH shall provide all plant, equipment, machinery, appliances and other things necessary to provide the services.

The commencement date of the agreement is still undeterminable given that the required

conditions are still in process. In the meantime, according to the agreement, the Company may require PTDH to carry out the services or any other work in connection with the agreement through the Interim Contract entered into on August 1, 2008. Based on the Interim Contract, PTDH shall supply all labor, funds, materials, equipment, transportation and accommodation, supervision and administration to carry out the work, including hauling the overburden, coal to Run of Mine (ROM), ROM coal to port, pit to the PT Duta Tujuh Bersaudara Sejati (DTBS) port, coal pressing, port operation and coal loading, road management entering PT Indonesia Mineral and Coal Mining (IMCM) port, and other mining support while the Company shall provide the coal preparation plant, overland conveyor, port and other required facilities.

9. Mining Services Agreement (Asam-asam Conveyor and Crushing Plant) Effective May 26, 2011, the Company and NTP entered into a Mining Services Agreement, whereby NTP shall provide the services in accordance with the said agreement, which shall include planning and procuring the engagement of a third party contractor to carry out and complete the procurement, supply, construction, erection, testing and commissioning of Asam-asam Conveyor and Crushing Plant in conformity with the specifications mentioned in the agreement, upon which such asset will be used for the crushing, conveying/transporting and stockpiling at the Company’s Asam-asam mine site.


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26. COMMITMENTS AND SIGNIFICANT AGREEMENTS (Continued) In consideration for the services and the use of the asset, the Company shall pay NTP the exclusivity services fees and the asset service fees based on the usage of the asset throughout the period of the agreement. The amounts of the service fees as calculated are set forth in the agreement. The term of this agreement is seven (7) years from the effective date or earlier as agreed by both parties.

10. Mining Services Agreement (Continuous Barge Unloader) Effective August 25, 2011, the Company and NTP entered into a Mining Services Agreement, whereby NTP shall provide the services in accordance with the said agreement, which shall include planning and procuring the engagement of third party contractors to carry out and complete the procurement, supply, construction, erection, testing and commissioning of Continuous Barge Unloader in conformity with the specifications mentioned in the agreement, upon which such asset will be used for unloading coal from the Company’s barges to the North Pulau Laut Terminal. In consideration for the services and the use of the asset, the Company shall pay NTP the exclusivity services fees and the asset service fees based on the usage of the asset throughout the period of the agreement. The amounts of the service fees as calculated are set forth in the agreement. The term of this agreement is seven (7) years from the effective date or earlier as agreed by both parties.

f. Collaboration Agreement

On May 17, 2006, the Company and Kobe Steel Ltd. (KSL) entered into a Collaboration Agreement, whereby KSL will complete the development of the UBC process by utilizing a demonstration plant. Bumi will participate in the development of the UBC Process, and will further utilize the established UBC process to produce and sell the UBC products, under license from KSL. KSL will build the demonstration plant at the Satui mine of the Company. In order to facilitate the performance of the development, Bumi shall pay KSL one billion one hundred million Japanese Yen (JPY1,100,000,000), which will be paid in installments until March 2009. On May 13, 2008, the Company, PT Upgraded Brown Coal Indonesia (UBCI), KSL’s subsidiary, and the Japan Coal Energy Center (JCOAL) entered into an Amended and Restated Land Lease and Supply Agreement. As of July 1, 2006, the Company had secured the site to enable JCOAL to start the soil investigation and prepared all necessary permits and approvals issued by the GOI. The Company had also installed pipes, cables, gauges and any other apparatus necessary and required to provide an uninterrupted supply of utilities to the site at the Company’s cost and expense so that the utilities were ready to be supplied upon the scheduled commissioning date of the demonstration plant until March 1, 2008. The Company agreed that JCOAL will construct and own the demonstration plant on the site prepared by the Company and transferred Hak Guna Bangunan on the site to UBCI. During the demonstration stage, the Company or any other designated party shall have the exclusive right to purchase at cost basis and sell UBC product leftovers from the development. Notwithstanding the Company’s exclusive sales right, the Company or any other designated party shall sell the UBC products as samples to potential customers that UBCI and/or JCOAL desire to provide.

The agreement shall continue in full force and effect until June 30, 2010, the end of the demonstration stage. Unless notified by UBCI one month prior to the expiry of the agreement, it shall automatically be extended on the same terms for a further period of one (1) year and so on thereafter.


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26. COMMITMENTS AND SIGNIFICANT AGREEMENTS (Continued)

g. Coal Sale and Purchase Agreement On January 1, 2007, the Company and KPC, Enercorp and ICRL, entered into a Coal Sale and Purchase Agreement, wherein ICRL shall sell and deliver and Enercorp shall purchase and take delivery of coal upon the terms and conditions set out, and KPC and the Company agree to guarantee the obligations of ICRL to Enercorp. Unless terminated earlier, the Agreement shall continue to be in effect until December 31, 2016. The term shall be divided into two terms as follows: 1. “Initial term” that shall take effect on January 1, 2007 and shall end on December 31, 2013, or

until the obligations of both parties have been completed as mutually agreed, whichever occurs first; and

2. “Extended term” that shall commence upon the expiry of the initial term until the completion of

the term. The conditions for the extended term are to be discussed and mutually agreed. h. Management Service Agreements

1. Management Service Agreement with Bumi

On November 20, 2008, the Company entered into a Management Service Agreement with Bumi. Under the agreement, Bumi shall provide certain management support services to the Company starting July 1, 2008 for a consideration of USD3,888,889 every month from the commencement date up to the end of the agreement.

This agreement may be terminated at any time by the mutual written consent of both parties, by Bumi if the Company fails to pay the above amount, or by Bumi if the Company becomes insolvent or enters into bankruptcy or composition with its creditors.

2. Management Service Agreement with Bhivpuri

On November 20, 2008, the Company entered a Management Service Agreement with Bhivpuri. Under the agreement, Bhivpuri shall provide certain management support services to the Company starting July 1, 2008 for a consideration of USD1,666,667 every month from the commencement date up to the end of the agreement. This agreement may be terminated at any time by the mutual written consent of both parties, by Bhivpuri if the Company fails to pay the above amount, or by Bhivpuri if the Company becomes insolvent or enters into bankruptcy or composition with its creditors.

i. PLN Contract Agreement of Low-Rank Coal

On December 15, 2006, the Company, PTDH (the “Suppliers”) and PLN entered into a Sale Purchase Agreement (SPA LRC) granting the Company a twenty-year contract to supply coal to thirteen (13) locations of Steam Fired Power Plants (PLTU) owned by PLN. The Company also entered into a one-year sale purchase agreement, which ended on December 31, 2007, in order to meet the shortage of coal in PLTU Suralaya. Subsequent amendments pertaining to the quality of coal, invoicing and billing and payment mechanism were made to the SPA LRC on March 2, 2007, March 12, 2007 and August 7, 2007, respectively. The fourth amendment relating to the extension of the terms of SPA LRC to October 31, 2008, as well as the diversion of 160,000 tonnes of coal to PLTU Asam-asam (existing) out of the agreed 800,000 tonnes of shipments to PLTU Suralaya (existing) was agreed upon on March 12, 2008.


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26. COMMITMENTS AND SIGNIFICANT AGREEMENTS (Continued) All parties have reached agreement on ten (10) out of thirteen (13) contracts, namely: PLTU Suralaya (existing) Unit 1-4, PLTU Suralaya (existing) Unit 5-7, PLTU Asam-asam (existing), PLTU 1 Banten (Suralaya New), PLTU 2 Banten (Labuan), PLTU 1 Jawa Barat (Indramayu), PLTU 2 Jawa Timur (Paiton Baru), PLTU 1 Jawa Timur (Pacitan), PLTU 3 Banten (Teluk Naga) and PLTU 1 Jawa Tengah (Rembang). The SPA LRC of PLTU Asam-asam (existing) already commenced in 2006, the SPA LRCs of PLTU 2 Banten (Labuan) and PLTU 1 Jawa Tengah (Rembang) already commenced in 2009, and all other SPA LRCs except PLTU 1 Jawa Timur (Pacitan) are already commenced in 2010. The remaining SPA LRCs of the three (3) PLTUs, namely for PLTU Tanjung Awar-Awar (Jawa Timur), PLTU Parit Baru (Pontianak) and PLTU Cilacap (as relocation of PLTU Tanjung Jati) are still in process as of the completion date of these financial statements.

j. Contract for the Supply of Fuel

On August 24, 2009, the Company and KPC (Purchasers) and Bakrie Petroleum International Pte Ltd. (Seller) entered into a Contract for the Supply of Diesel Fuel, wherein the Seller agrees to deliver and sell to the Purchasers, and the Purchasers agree to purchase, take delivery, and pay for diesel fuel as required by the Contract. The diesel fuel is to be supplied by Petromine. During the term of the agreement, the Company guarantees all of the Seller’s obligations to the Buyer under the Contract. The agreement is valid until August 24, 2014 and can be extended for another five (5) years upon mutually accepted terms and conditions signed by the parties.

k. Rental Agreement with PT Mitratama Perkasa The Company entered into the Asam-Asam Port Service Agreement (the “Asam-asam

Agreement”) with Mitratama, under which Mitratama has agreed to provide Port services to the Company; Port means coal loading port at Muara Asam-asam Village, Jorong Sub-district, Tanah Laut District, with all of the equipment required for the Port to operate in accordance with the agreement, which is effective starting January 4, 2010. The expiration date of this agreement will be the earlier of; (i) twenty (20) years after the effective date; (ii) end of the Company’s mining concession; or (iii) if terminated in writing by the parties hereto or based on provisions on termination of agreement hereunder.

On December 2, 2010, the Company and Mitratama entered into Amendment Agreement relating

to the Asam-asam Agreement to amend and restate the terms of the Asam-asam Agreement in the form set out in Asam-asam Port Rental Agreement.

Under the Asam-asam Port Rental Agreement, Mitratama shall rent to the Company, and the

Company shall rent from Mitratama, the asset upon the terms and subject to the conditions in the agreement; asset means the coal loading port located in Muara Asam-asam Village, Jorong Subdistrict, Tanah Laut District, with all of the equipment and required for the Port to operate in accordance with the agreement. Mitratama shall provide services which shall include making the asset, which will be used for the loading, handling and transporting of coal available to the Company for its exclusive use, among others. This agreement shall commence on the December 2, 2010 and shall (subject to earlier termination of this agreement in accordance with its terms) terminate automatically without notice on the expiry of the term. The parties may mutually agree in writing to terminate this agreement after a period of five (5) years from the effective date. From December 31, 2017, either party may unilaterally terminate this agreement by giving written notice to the other party.


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27. CONTINGENCIES The Company is contingently liable for various claims from third parties arising from the ordinary conduct of business, including tax assessments, results of which are either pending or are being processed by the Court, the outcomes of which may be substantial, but are not presently determinable. In addition, the Company has submitted various claims to third parties, the outcomes of which may be substantial but are not presently determinable, pending decision by the court. The following are the contingencies as of reporting date: a. Illegal Mining

Illegal mining increases the Company’s production costs of mining coal in the area affected in three (3) ways. First, illegal miners disturb areas without regard to the measures necessary to reclaim and rehabilitate the area after mining is completed. Second, illegal miners extract the coal that is most accessible on the land surface with the lowest strip ratio, leaving the deeper coal that can only be extracted at a higher and therefore, more costly strip ratio. Lastly, illegal mining requires the Company to alter its mine plans for the area affected and incur additional incidental costs related to damage caused by illegal miners, such as road maintenance and rehabilitation costs. In 2004, the Company commissioned a report from the Center of Research and Development of Mineral and Coal Technology in Indonesia, an independent research institute involved in the coal mining industry, to verify its calculation of the incremental cost of mining in illegally mined areas. The Company has provided a copy of this report to the GOI as evidence of the incremental costs it faces due to illegal mining. Because the Company has the right to mine the entire area covered by its CCOW, the Company believes that the incremental costs it will face in mining areas illegally mined should be borne by the GOI. On June 30, 2004, the Company requested the GOI to compensate the Company for the incremental costs by offsetting against the entitlement payments due to the GOI. This request was rejected in a letter from the Directorate General of Geology and Mineral Resources, Ministry of Energy and Mineral Resources dated July 23, 2004. Since then, the Company has had numerous meetings with representatives of the Ministry of Energy and Mineral Resources and other government agencies to resolve this matter. As of the completion date of the financial statements, the discussions are still ongoing.

b. Offset of Input VAT against Coal Production Proceeds

Based on regulation No. 144/2000 dated December 22, 2000, the GOI adopted the VAT Regulation, which provides that, effective January 1, 2001, unprocessed coal is not subject to VAT. As a result of the VAT Regulation, uncertainty has arisen as to whether VAT paid by the Company in relation to imports and local purchases of materials, supplies and other items necessary to produce coal are creditable against other taxes. Until 2000, all VAT for production inputs claimed by the Company had been refunded by the GOI. However, since January 1, 2001, the Company’s request for VAT refunds has not been granted by the GOI’s tax authorities. Under the terms of the CCOW, except for taxes expressly imposed under the terms of the agreement, the GOI has agreed to indemnify the Company against all Indonesian taxes, duties, rentals and coal production proceeds levied by the GOI, including VAT. Moreover, in the event that the Company (or any other party on behalf of the Company) pays any amount on account of those taxes from which they are entitled to be indemnified, the GOI has agreed to reimburse them or the party paying the tax within sixty (60) days after receipt of the invoice.


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27. CONTINGENCIES (Continued) The Company has submitted claims to the Directorate General of Energy and Mineral Resources for all VAT amounts that have been outstanding for more than sixty (60) days. Those claims have not been settled by the Directorate General. In April 2004, the Indonesian Supreme Court, at the request of the Indonesian Coal Mining Association, a federation of coal producers in Indonesia, issued an advisory opinion that the VAT Regulation is invalid under Indonesian law. Although this advisory opinion is not legally binding on the GOI, the Company believes it will provide support to their claims of VAT reimbursement. The Company expects to recover all VAT amounts reflected in its financial statements based on the provisions of the CCOW and the April 2004 Indonesian Supreme Court advisory opinion. In addition, the Company’s management believes that other coal companies in Indonesia that have entered into “first generation” contracts of work for coal mining in Indonesia are following similar procedures. In the meantime, the Company has offset its VAT payments against the coal entitlement payments to the GOI (coal production proceeds). Should the GOI impose the VAT Regulation, the Company will pay the coal production proceeds, which have not been offset against the VAT payments. However, on February 9, 2006, the Company, together with the other first generation coal mining companies, received a letter from the General Director of Mineral, Coal and Geothermal warning them to submit the outstanding coal production proceeds. It also specified that first generation coal mining companies should first remit the coal production proceeds and subsequently apply for a refund on the VAT-Input that they had paid instead of offsetting these. The Company’s legal consultants issued a legal opinion on May 23, 2006 stating that the Company has the legal right to offset VAT payments against coal production proceeds payables, and that action by the GOI in respect of a default can only be taken after the dispute has been settled by arbitration, as stated in Article 23 of the Company’s CCOW. Furthermore, all of the legal consultants to the first generation coal producing companies share that opinion. Subsequently, on September 7, 2006, in response to the letter sent by the Company, the Investing Coordinating Board [Badan Koordinasi Penanaman Modal (BKPM)] stated that based on Law No. 11/1994, “VAT on Sale of Taxable Goods and Services”, Article 11 (b), VAT for mining of oil and gas businesses, general mining and other mining based on a profit-sharing contract shall be determined based on the profit-sharing contract, CCOW and other outstanding agreements until the due dates. Furthermore, based on the CCOW, the GOI will pay and free the contractors from all taxes, duties, rent and coal production proceeds at present and in the future, with exceptions. Therefore, charges of VAT to the Company are inconsistent with Law No. 11/1994 and the CCOW, thus, payment of VAT can be reimbursed or offset with outstanding coal production proceeds due to GOI. As requested by the Government, Badan Pengawasan Keuangan dan Pembangunan (BPKP) audited the Company’s payments of coal production proceeds for the years 2001-2007. On December 1, 2008, Tim Optimalisasi Penerimaan Negara (Tim OPN) from BPKP issued the audit results as follows: 1. Underpayment of coal production proceeds from January 1, 2001 to December 31, 2007

amounting to USD113,826,488, excluding penalties for late payment;

2. Underpayment of Sales Tax from January 1, 2001 to December 31, 2007 amounting to Rp408,374,038,322, excluding penalties; and

3. Pending submission of reimbursement of VAT for the period of January 1, 2001 to

December 31, 2007 amounting to Rp1,107,395,463,003.


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27. CONTINGENCIES (Continued) The Company submitted its objection letter on December 5, 2008. As of the completion date of the financial statements, the Company is still waiting for the response of Tim OPN. Moreover, another assessment was performed by BPKP in behalf of Tim OPN for the year 2008 as stated in Assignment Letter No. ST-13/OPN.TEKNIS/7/09 dated July 22, 2009. On January 15, 2010, BPKP issued the audit result stating an underpayment of coal production proceeds for the year 2008 amounting to USD45,043,753 including penalties for late payment. The Company submitted an objection letter on January 20, 2010. As of the completion date of the financial statements, the Company is still waiting for the response of BPKP. In accordance with Assignment Letter No. 65/ST/VI-XVII/10/2010 dated October 18, 2010, Badan Pemeriksa Keuangan (BPK) also performed another examination for the year 2008 until the second quarter of 2010. On December 16, 2010, BPK issued the audit finding stating an underpayment of coal production proceeds including penalties for late payment amounting to USD3,257,183. On December 27, 2010, the Company sent a response letter to BPK accepting the audit findings for the year 2009, except for the underpayment of coal production proceeds including penalties for late payment as result of several joint costs amounting to USD2,486,819 deducted by the Company from the government entitlement were not allowable deduction. On February 7, 2011, the Company received a letter from the Directorate General of Mineral, Geology, Coal and Geothermal stating that the Company should pay the underpayment of coal production proceeds including penalties for late payment amounting to USD1,021,233. This underpayment was fully paid on February 21, 2011. The underpayment was related to the above audit findings from BPK for 2009 coal production proceeds.

c. Pricing under the Long-term Service Agreement As disclosed in Note 26b, on June 26, 2007, subsequent to the termination of the IndoCoal Securitization Transaction, the Company and ICRL entered into a LTSA. Under the LTSA, the Company conducts a portion of its coal sales through ICRL, acting as its international marketing agent, with the price determined from the fixed forward price agreed in the LTSA. Under Indonesia’s income tax law, the Indonesian Director General of Taxes is authorized to re-determine the amount of the taxable income of a taxpayer in relation to affiliated transactions. Since the fixed forward price per tonne of coal may, at times, be below world market prices and less than ICRL’s selling price to its end customers, it is possible that the relevant tax authorities may increase the Company’s tax liabilities for past or future years for any of their existing of future affected transactions with ICRL.

d. HM Rhodi Firdaus, Dahri, Norhaidi, Syarbaini, M. Zaini and Utuh Nani (the “Plaintiffs”) filed a lawsuit in the District Court of Pelaihari regarding the ownership of the land explored by the Company covering twelve (12) hectares. The Plaintiffs demand compensation amounting to Rp660 billion for coal mined and Rp2.4 billion for the use of the land. On April 3, 2007, the District Court of Banjarmasin declared HM Rhodi Firdaus as the legal owner of the disputed land. However the court also found that the Company is not liable to pay any compensation. The Appelate Court dismissed the Company’s appeal on December 13, 2007. Subsequently, on December 11, 2008, the Supreme Court rejected the Company's cassation application. Therefore, the current standing of the case refers to the decision of the District Court, which awarded the legal ownership to HM Rhodi Firdaus and cleared the Company of any liability for compensation.


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27. CONTINGENCIES (Continued) This position was confirmed by the decision of the District Court of Pelaihari on December 12, 2009, which stated that the decisions of the District Court, High Court, and Supreme Court are non-executable against the Company. However, to ensure the Company's legal position on the case, the Company is in the process of filing an application for judicial review in the Supreme Court. As of the completion date of the financial statements, the application for judicial review is still ongoing.

e. On June 9, 2009, the Company filed two (2) lawsuits in the State Administrative Court of Banjarmasin against the decrees of the Regent of Tanah Bumbu District concerning the issuance of exploration and exploitation mining rights to PT Anzawara Satria (AS) and CV Putra Parahyangan Mandiri (PPM) that overlap with the Company's CCOW areas of DU 314/KALSEL and 322/KALSEL. The two (2) lawsuits were examined in different court proceedings. On June 30, 2009, through an interlocutory judgment, the Court granted the request of AS to be the intervening party of the proceedings, which was subsequently followed by PPM on July 28, 2009. On August 4, 2009, through an interlocutory judgment, the Court denied the counterclaim proposed by the Regent of Tanah Bumbu District and AS. On August 11, 2009, AS appealed the interlocutory judgment that was dismissed by the Court. On November 3, 2009, the Court issued two (2) decisions which approved the Company's claims. The decisions terminated the exploration and exploitation permits of AS and PPM, and ordered the Regent of Tanah Bumbu District to revoke such permits. At the same time, the Court also issued two decrees which postponed the validity of the exploration and exploitation permit of AS and PPM. Due to the issuance of such court decisions and decrees, AS, PPM and the Regent of Tanah Bumu District filed appeals in the High Administrative Court, where the Company lost the case with AS, while the Company won the case with PPM and the Regent of Tanah Bumbu District. Subsequently, the Company appealed to the Supreme Court for its case with AS. On the opposite, the Regent of Tanah Bumbu District and PPM appealed to the Supreme Court. As of the completion date of the financial statements, both cases are still being examined at the Supreme Court.

f. On June 3, 2010, the Company filed a suit with the Administrative Court of First Instance of Banjarmasin, against the Regent of Kotabaru and PT Sebuku Tanjung Coal with regard to the issuance of the Decree of Kotabaru’s Regent concerning the exploration mining permits issued to PT Sebuku Tanjung Coal dated April 20, 2009 that overlap with the Company's CCOW area. On December 2, 2010, the Administrative Court of First Instance of Banjarmasin decided that the lawsuit from the Company cannot be accepted for material examination, because the lawsuit does not meet formal requirements. On March 25, 2011, the Administrative Court of Appeal issued a decision in favor of PT Sebuku Tanjung Coal. As of the completion date of the financial statements, the Company is in the process of filing application for appeal at the Supreme Court.

g. On June 3, 2010, the Company filed a suit with the Administrative Court of First Instance of Banjarmasin, against the Regent of Kotabaru and PT Sebuku Batubai Coal with regard to the issuance of the Decree of Kotabaru’s Regent concerning the exploration mining permits issued to PT Sebuku Batubai Coal dated April 20, 2009 that overlap with the Company's CCOW area.


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27. CONTINGENCIES (Continued) On December 2, 2010, the Administrative Court of First Instance of Banjarmasin decided that the lawsuit from the Company cannot be accepted for material examination, because the lawsuit does not meet formal requirements. On March 25, 2011, the Administrative Court of Appeal issued a decision in favor of PT Sebuku Batubai Coal. As of the completion date of the financial statements, the Company is in the process of filing application for appeal at the Supreme Court.

h. On November 4, 2010, the Company filed a lawsuit with the Administrative Court of First Instance of Banjarmasin, against the Regent of Tanah Bumbu and PT Nawaksara with regard to the issuance of Decree of Kotabaru’s Regent No. 545/064/IUP-OP/D.PE/2009 concerning the operational production (exploitation) mining permits issued to PT Nawaksara dated December 29, 2009 in the area (with code No. TB.08 DESPR 127) located at Sungai Dua Village, Simpang Empat Sub-district, Tanah Bumbu Regency with total area of 87.7 hectares. Subsequently, on January 10, 2011, the Administrative Court of Banjarmasin has issued a decision in the Company’s favor, which declared acceptance of the Company’s claim and declared the decision of the Regent of Tanah Bumbu in regard to the operational production mining permit issued to PT Nawaksara as null and void, and ordered the Regent of Tanah Bumbu to revoke its decision concerning the production operation mining permits issued to PT Nawaksara, and sentenced the defendant to pay the court fee. On February 7, 2011, the Regent of Tanah Bumbu and PT Nawaksara filed an appeal at the Administrative High Court. As of the completion date of the financial statements, the case is still ongoing at the Administrative High Court.

i. Under the Ministry Regulation No.18/2008 and the new Government Regulation No. 78 Year 2010

(GR) dated December 20, 2010, the holder of Contract of Work, PKP2B, and IUP Operasi Produksi that has not yet provided reclamation deposit and mine closure deposit in accordance with this GR should provide both reclamation deposit and mine closure deposit within three months after the effective date of this GR. In accordance with the Ministry Regulation No. 18/2008, the Company has already provided reclamation deposits amounting to USD3,149,485 and USD2,740,799 as of September 30, 2011 and March 31, 2011, respectively (Note 11).

The Company submitted its Mine Closure Plan on June 30, 2009 through letter No. 300/AI/VI/09

to Ministry of Energy and Mineral Resources. As of the completion date of the financial statements, the Company is considering the necessity to allocate deposits for mine closure provisions based on the outcome of the Mine Closure Plan, which is still subject for evaluation and approval by the Government.

j. On August 20, 2010, PT Malindo Jaya Diraja, a plantation company who claims to own plots of

land which encompass the Company's CCOW area of DU-308/Kalsel (Karuh) and DU-318/Kalsel (Satui), filed lawsuit against the Company, the Ministry of Energy and Mineral Resources, the Ministry of Forestry, and the Governor of South Kalimantan, in relation with the issuance of the Company's mining concession, forestry permit, and recommendation for the Company to obtain forestry permit, respectively. On July 5, 2011, the Company was awarded at this level.

k. On July 1, 2010, Umar Yahya, a local resident, filed a lawsuit against the Company at the

Administrative Court of First Instance of Kotabaru based on the accusation that the Company has illegally obtained possession of Mr. Yahya's plots of land with the total area of 45 hectares. On April 20, 2011, the Administrative Court of First Instance of Kotabaru rejected Mr. Yahya's lawsuit.

Subsequently, on May 19, 2011, Mr. Yahya filed an appeal at the Administrative High Court. As of

the completion date of the financial statements, the case is still ongoing at the Administrative High Court.


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27. CONTINGENCIES (Continued) l. On April 7, 2011, Abdul Hadi, a local resident, filed a lawsuit against the Company, PT Cipta

Kridatama and Mr. H. Darmansyah at the Administrative Court of First Instance of Kotabaru, based on the accusation that the Company has been paying Mr. Darmansyah the compensation for mining in a plot of land which ownership is still being disputed between Mr. Hadi and Mr. Darmansyah.

On May 11, 2011 and June 22, 2011, the Administrative Court of First Instance of Kotabaru

arranged a mediation process, however, it failed to settle the land dispute. As of the completion date of the financial statements, the case still being examined at the Administrative Court of First Instance.

m. On June 7, 2011, PT Eka Bhuwana Dirgantara, a mining company who claims to own plots of

land which encompass the Company’s CCOW area DU-312/Kalsel (Sembilang), filed a lawsuit against the Company, in relation with the issuance of the Company’s mining concession. As of the completion date of the financial statements, the case is still being examined at the District Court of South Jakarta.

28. ACCOUNTING STANDARDS PRONOUNCEMENTS

The Indonesian Institute of Accountants has released revisions to several accounting standards that may have certain impacts in the financial statements. The following revisions for financial statements for the period commencing from on or after January 1, 2012: PSAK No. 10 (Revised 2010), “The Effects of Changes in Foreign Exchange Rates”. PSAK No. 18 (Revised 2010), “Accounting and Reporting by Retirement Benefit Plans”. PSAK No. 24 (Revised 2010), “Employee Benefits”. PSAK No. 34 (Revised 2010), “Construction Contracts”. PSAK No. 46 (Revised 2010), “Income Taxes”. PSAK No. 50 (Revised 2010), “Financial Instruments: Presentation”. PSAK No. 53 (Revised 2010), “Share-based Payments”. PSAK No. 60, “Financial Instruments: Disclosures”. PSAK No. 61, “Accounting for Government Grants and Disclosure of Government Assistance”. ISAK No. 13, “Hedges of Net Investment in a Foreign Operation”. ISAK No. 15, “PSAK No. 24 - The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction”. ISAK No. 20, “Income Taxes - Changes in the Tax Status of an Entity or its Shareholders”. The Company is still evaluating the potential impact of the above new accounting standards and interpretations in its financial statements.


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29. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Non-cash financing activities consist of:


Interest income on loans to shareholders accruedin due from/due to related parties (849,190) -

Offsetting of due from a related party withtrade payable to a related party (3,082,142) (776,000)

Offsetting of payments to government withdue from a related party - (64,643,585)

September 30,

30. RECLASSIFICATION OF ACCOUNTS Certain accounts in the financial statements for the six-month period ended September 30, 2010 have been reclassified to conform to the presentation of accounts in the Company’s financial statements for the six-month period ended September 30, 2011 for comparative purposes.

2010As Previously 2010

Reported Reclassifications As Reclassified

Due from related parties 278,018,874 (28,279,382) 249,739,492 Loans to shareholders - 33,353,966 33,353,966 Other current assets 12,660,038 3,701,424 16,361,462 Other non-current assets 74,790,519 (3,701,424) 71,089,095 Due to related parties 3,757,112 5,074,579 8,831,691

Cost of sales 411,951,190 426,529 412,377,719 Other income (expenses) 2,538,437 426,529 2,964,966

Net cash provided by operating activities 14,348,894 2,989,031 17,337,925 Net cash used in investing activities (7,417,978) (2,989,031) (10,407,009)

31. COMPLETION OF FINANCIAL STATEMENTS

The management of the Company is responsible for the preparation of these financial statements that were completed on October 24, 2011.

Report Arutmin Indonesia September 2011

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Transcript of Report Arutmin Indonesia September 2011